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Poverty, Armed Conflict and Financial Instability

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Abstract

Civil conflict has far-reaching effects on underdeveloped economies. Whilst military expenditure may be diverted into projects that encourage human capital accumulation and the construction of essential infrastructure, conflict destroys institutions and infrastructure generating financial instability and exacerbating stagnation and underdevelopment. Vicious circles emerge as socioeconomic instability contributes to ongoing civil unrest and financial instability, in turn increasing the risk of future conflicts. In this paper, the relationships between conflict, finance and poverty are analysed by exploring the hypothesis that poverty and conflict are magnified by financial factors. Interactions between conflict, absolute poverty and finance are estimated using least squares and binary dependent variable techniques adapted to capture simultaneity, with heterogeneity captured using fixed effects techniques. The results suggest a strongly significant positive relationship between poverty and conflict; the risk of war is positively associated with financial factors suggesting that financial resources will influence poverty indirectly by increasing risks of conflict.

Suggested Citation

  • Baddeley, M.C., 2008. "Poverty, Armed Conflict and Financial Instability," Cambridge Working Papers in Economics 0857, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:0857
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    Cited by:

    1. Ionescu Cristian, 2012. "Financial Instability, Financial Development And Poverty," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 4, pages 142-145, December.

    More about this item

    Keywords

    Civil conflict; absolute poverty; development finance.;

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P46 - Economic Systems - - Other Economic Systems - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty

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