Diamonds are Forever, Wars are Not: Is Conflict Bad for Private Firms?
This Paper studies the relationship between civil war and private investment in a poor, resource abundant country using microeconomic data for Angola. We focus on diamond mining firms and conduct an event study on the sudden end of the conflict, marked by the death of the rebel movement leader in 2002. We find that the stock market perceived this event as ‘bad news’ rather than ‘good news’ for companies holding concessions in Angola, as their abnormal returns declined by 4 percentage points. The event had no effect on a control portfolio of otherwise similar diamond mining companies. This finding is corroborated by other events and by the adoption of alternative methodologies. We also use nonparametric techniques with daily data on the intensity of conflict, and find that moderate levels of violence increased the abnormal returns of the ‘Angolan’ portfolio. We interpret our results in the light of the widespread rent seeking in the Angolan mineral industry.
|Date of creation:||Oct 2004|
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- Alberto Abadie & Javier Gardeazabal, 2001.
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NBER Working Papers
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NBER Working Papers
4486, National Bureau of Economic Research, Inc.
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- Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
- Svensson, Jakob, 1998. "Investment, property rights and political instability: Theory and evidence," European Economic Review, Elsevier, vol. 42(7), pages 1317-1341, July.
- Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
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