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Civil War and Human Development: Impacts of Finance and Financial Infrastructure

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Abstract

In this paper interactions between finance, development and armed conflict are explored to demonstrate that financial factors are crucial in sustaining conflict-underdevelopment feedback loops. Military expenditure drains resources, financial instability leads to conflict (and vice versa), war retards the development of financial institutions/infrastructure, and interactions between finance and conflict are exacerbated by distributional struggles. Some of these feedback effects are captured within a two-stage model of war, finance and development and this is used as the basis for an empirical analysis. Econometrically, the model is estimated using panel estimation and two stage Probit least squares (2SPLS) binary dependent variable estimation techniques to control for simultaneity and heterogeneity. The results suggest that financial constraints and financial instability increase the chances of civil war directly and, via negative impacts on development, indirectly too.

Suggested Citation

  • Baddeley, M., 2011. "Civil War and Human Development: Impacts of Finance and Financial Infrastructure," Cambridge Working Papers in Economics 1127, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1127
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    File URL: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1127.pdf
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    References listed on IDEAS

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    1. Daron Acemoglu & Davide Ticchi & Andrea Vindigni, 2010. "Persistence of Civil Wars," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 664-676, 04-05.
    2. Paul Collier & Anke Hoeffler & Dominic Rohner, 2009. "Beyond greed and grievance: feasibility and civil war," Oxford Economic Papers, Oxford University Press, vol. 61(1), pages 1-27, January.
    3. Maarten Voors & Eleonora Nillesen & Philip Verwimp & Erwin Bulte & Robert Lensink & Daan van Soest, 2010. "Does Conflict affect Preferences? Results from Field Experiments in Burundi," Research Working Papers 21, MICROCON - A Micro Level Analysis of Violent Conflict.
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    Cited by:

    1. Mertzanis, Charilaos, 2016. "The absorption of financial services in an Islamic environment," Journal of Economic Behavior & Organization, Elsevier, vol. 132(S), pages 216-236.

    More about this item

    Keywords

    Human development; civil conflict; military spending; financial instability; financial infrastructure;

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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