Development and large scale violence

A single equation model is inadequate to capture the various transmission channels linking civil war to per-capita income. Therefore, this paper uses a system of four equations to estimate the economic cost of civil con‡ ict. In the system, con‡ is allowed ict to a¤ect per-capita income both directly and indirectly through its e¤ect on a set of “deep determinants”of income. Estimates indicate that the income loss associated with con‡ is ict economically sizeable and that slightly less than half of this loss arises from the deterioration of institutions. Eventually, the economy rebounds, recovering about one half of the initial loss.