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Economic shocks and civil conflict: Evidence from foreign interest rate movements

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  • Hull, Peter
  • Imai, Masami

Abstract

We exploit annual variation in influential foreign interest rates to identify externally-driven components of short-run income shocks in small open economies from 1971 to 2004 and explore the statistical nature of the income–civil conflict nexus. Our results show that movements in foreign interest rates have important effects on civil conflict risk through domestic economic channels. More importantly, the income–conflict relationship is found to be nonlinear – the conflict risk of ethnolinguistically fragmented countries is found to be much more sensitive to shifts in economic conditions than that of homogeneous countries. These results suggest an important mechanism by which short-term economic shocks affect the trajectory of the political and economic performance of ethnically divided states.

Suggested Citation

  • Hull, Peter & Imai, Masami, 2013. "Economic shocks and civil conflict: Evidence from foreign interest rate movements," Journal of Development Economics, Elsevier, vol. 103(C), pages 77-89.
  • Handle: RePEc:eee:deveco:v:103:y:2013:i:c:p:77-89
    DOI: 10.1016/j.jdeveco.2013.02.001
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    Cited by:

    1. repec:bla:reviec:v:25:y:2017:i:1:p:195-232 is not listed on IDEAS
    2. Massimiliano Calì & Alen Mulabdic, 2017. "Trade and civil conflict: Revisiting the cross-country evidence," Review of International Economics, Wiley Blackwell, vol. 25(1), pages 195-232, February.
    3. Gustavo Javier Canavire-Bacarreza & Michael Jetter & Alejandra Montoya-Agudelo, 2016. "Polarized Education Levels and Civil War," CESifo Working Paper Series 6267, CESifo Group Munich.

    More about this item

    Keywords

    Civil conflict; Open economy; Ethnolinguistic fragmentation;

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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