Global Economic Development Class

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Global Economic DevelopmentClass 20
The economics of war Questions 1. What is the
relationship between war and economic growth? Two
way relationship 2. Productive vs. destructive
effort 3. War vs. appeasement (today and next
class)
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• Some facts about civil wars
• Conflict average duration 7 years
• Economy grows 2.2 percentage points less a year
• Recovery takes a least a decade
• Forced migrations
• Health suffers higher mortality for everybody
  (not only combatants)
• Neighboring countries (not in war) also loose
  economically

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• Miguel et al Economic shocks and civil conflict
  an instrumental variables approach
• Does economic growth cause civil war?
• How to break the endogeneity problem?
• Instrumental variable rain fall!
• Idea
• Rain fall affects agriculture
• Agriculture is big part of economy in these
  countries
• Civil war appears
• Conclusion economic conditions matter for civil
  war

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• Data
• Civil war conflicts with more than 25 deaths in
  a year
• Rainfall
• Controls
• Gdp per capita
• Democracy indicators
• Ethnolinguistic fractionalization
• Religious fractionalization
• Oil-exporting country
• Geography (mountainous)
• Population
• Terms of trade

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• First stage equation (where we show that economic
  growth and rainfall are related)
• growthitcountry dummies
• country-time characteristics
• beta1(change in rainfall at t)
• beta2(change in rainfall at t-1)
• time trends
• eit
• Table 2
• Current and lagged rainfall growth affect
  economic growth

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• Second stage equation
• conflictitcountry dummies
• country-time characteristics
• alpha1(growth at time t)
• alpha2(growth at time t-1)
• time trends
• eit
• Table 4
• Economic growth is not statistically significant
  in OLS, but it is in 2SLS
• Economic growth causes civil war
• Also economically significant 5 percentage
  points decline in lagged growth increases civil
  war by 12 percentage points (half the likelihood
  of conflict).
• Interactions Table 5, not significant
  democracy, ethnolinguistic fractionalization,
  income per capita (richness), oil-exporting,
  geography

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• Hirschleifer Technology of conflict as an
  economic activity
• Two ways of satisfying desires
• Production
• Conflict actual or threatened theft, robbery,
  confiscation, or litigation
• We know production technologies represented by
  production functions
• But what about conflict technologies?
• Types of conflict to think
• War
• Class conflict
• Political conflict
• Strikes and lockouts
• Sibling rivalry
• Lawsuits

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• A model
• EiFiRi (resources R are used for productive
  effort (E) or fighting (F))
• If(E1,E2) (aggregate income is a function of
  productive efforts)
• p1g(F1,F2) p21-p1 (share of income depends on
  fighting efforts)
• IipiI
• Lets define g (the conflict technology) as
• p1/p2expkF1/expkF2
• or
• p11/1expk(F2-F1)
• Figure 1
• Stylized facts that the function satisfies
• Increasing returns and then decreasing returns
• There can be peace with both sharing the total

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• Technology of production
• If(E1,E2)A(E11/sE21/s)s
• S is index of complementarity.
• Figure 2
• Optimal at the intersection
• Comparative statics
• s increases (both curves shift upward) is not
  true that growing interdependence of countries
  is making war obsolete
• R1 increases (both curves shift upward)
• Conclusion including destructive technologies
  next to production technologies might explain
  better different growth paths for economies.

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