Insurgency and Spatial Reorganisation of Activities: Evidence from India’s Red Corridor

Conflicts damage economies, but is the damage always uniform across sectors? We test whether this is the case using the Maoist-Naxalite insurgency in India’s Red Corridor between 2016 and 2020. We estimate the role of insurgency violence in affecting economic activity across non-farm (VIIRS Nighttime Lights, VNL) and land-based subsistence (Normalised Difference Vegetation Index, NDVI) sectors. Using prior disruptions to insurgents’ operational capacity as a source of exogenous variation in armed clashes between insurgent and counter-insurgent forces, we find that a 0.1-unit increase in violence exposure, equivalent to an armed clash occurring roughly 60 km closer, reduces VNL by 18.04% and weakly increases NDVI by 0.36% in the following year. We provide suggestive evidence that this divergence is driven by a reallocation of labour across sectors, showing a rise in households primarily engaged in forest-based production alongside a decline in non-farm engagement following an increased exposure to violence. The findings imply that violent conflicts can produce heterogeneous rather than uniform effects depending on actors’ incentives. They caution against mitigation policies based on violence intensity alone: doing so may risk misjudging both which sectors are at risk and how recovery unfolds if the selectivity of a conflict’s economic effects goes unaccounted for. Our main results remain causal and robust to a battery of tests.