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The Economic Cost of Armed Conflict

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  • Gardeazabal, Javier
  • Vega Bayo, Ainhoa

Abstract

This paper estimates the distribution of the effect of armed conflict on real GDP per capita and investment. For each conflict, we construct a synthetic control from a set of conflict-free countries that closely resembles the conflicted country in the pre-conflict period. The economic evolution of this counterfactual country is then checked against the real evolution of the treated country to measure the GDP and investment gap that occurs during the conflict and post-conflict periods. We find that the size of the effect of armed conflict is very heterogeneous and varies widely depending on the type and intensity of the conflict episode being analyzed, as well as the number of years after onset. Conducting the analysis in levels instead of growth rates reveals that there is an economic loss even when there is a peace dividend effect. Our empirical exercise also serves as an illustration of a procedure to estimate the distribution of a heterogeneous treatment effect by means of the synthetic control method.

Suggested Citation

  • Gardeazabal, Javier & Vega Bayo, Ainhoa, 2016. "The Economic Cost of Armed Conflict," DFAEII Working Papers info:eu-repo/grantAgreeme, University of the Basque Country - Department of Foundations of Economic Analysis II.
    • Handle: RePEc:ehu:dfaeii:19843
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    File URL: https://addi.ehu.eus/handle/10810/19843
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    References listed on IDEAS

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    1. Pieter Serneels & Marijke Verpoorten, 2015. "The Impact of Armed Conflict on Economic Performance," Journal of Conflict Resolution, Peace Science Society (International), vol. 59(4), pages 555-592, June.
    2. Pieter Serneels & Marijke Verpoorten, 2012. "The impact of armed conflict on economic performance. Evidence from Rwanda," NEPS Working Papers 5/2012, Network of European Peace Scientists.
    3. Alberto Abadie & Javier Gardeazabal, 2003. "The Economic Costs of Conflict: A Case Study of the Basque Country," American Economic Review, American Economic Association, vol. 93(1), pages 113-132, March.
    4. Stergios Skaperdas, 2011. "The costs of organized violence: a review of the evidence," Economics of Governance, Springer, vol. 12(1), pages 1-23, March.
    5. Abadie, Alberto & Gardeazabal, Javier, 2008. "Terrorism and the world economy," European Economic Review, Elsevier, vol. 52(1), pages 1-27, January.
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    Cited by:

    1. Sami Miaari & Robert Sauer, 2011. "The labor market costs of conflict: closures, foreign workers, and Palestinian employment and earnings," Review of Economics of the Household, Springer, vol. 9(1), pages 129-148, March.
    2. Sara Rica & Lucía Gorjón, 2019. "Assessing the impact of a minimum income scheme: the Basque Country case," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 10(3), pages 251-280, November.
    3. Esteban Colla‐De‐Robertis & Rafael Garduno Rivera, 2021. "The effect of a free trade agreement with the United States on member countries' per capita GDP: A synthetic control analysis," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(4), pages 1129-1145, August.
    4. de la Rica, Sara & Gorjón, Lucía, 2017. "Assessing the Impact of a Minimum Income Scheme in the Basque Country," IZA Discussion Papers 10867, Institute of Labor Economics (IZA).

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