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Household investment under violence - the Colombian case

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  • Grun, Rebekka E.
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    Abstract

    Households in rural Colombia are confronted with a variety of violent threats: attacks and displacement threats by guerrillas and paramilitaries, gang violence among drug traffickers, and high common delinquency. In this context, households have to adjust their day-to-day decisions, including saving and portfolio choices, in order to be less vulnerable. The authors test the hypothesis that households, when confronted with exogenous violence, reduce their investment and, moreover, shift it from fixed to mobile assets, which would be safer in the case of displacement, and choose the opposite strategy under higher common delinquency associated with property crimes. Empirical evidence from a rich Colombian micro-data set strongly supports the hypothesis. The results shed new light on the economic impact of violence. The immediate reduction in capital stock might be much less severe than more permanent damage via the savings function. This has implications for the appropriate political answer to chronic violence in Colombia as well as in other areas of chronic conflict.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4713.

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    Date of creation: 01 Sep 2008
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    Handle: RePEc:wbk:wbrwps:4713

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    Related research

    Keywords: Economic Theory&Research; Investment and Investment Climate; Access to Finance; Bankruptcy and Resolution of Financial Distress; Public Sector Corruption&Anticorruption Measures;

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    Cited by:
    1. Maarten Voors & Eleonora Nillesen & Philip Verwimp & Erwin Bulte & Robert Lensink & Daan van Soest, 2010. "Does Conflict affect Preferences? Results from Field Experiments in Burundi," HiCN Working Papers 71, Households in Conflict Network.
    2. Alexander Cotte Poveda, 2011. "Estimating Effectiveness of the Control of Violence and Socioeconomic Development in Colombia: An Application of DEA and Data Panel Approach," SERIE DE DOCUMENTOS EN ECONOMÍA Y VIOLENCIA 008356, CENTRO DE INVESTIGACIONES EN VIOLENCIA, INSTITUCIONES Y DESARROLLO ECONÓMICO (VIDE).

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