Collier-99-oxford - Public Disclosure Authorized Public...

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On the Economic Consequences of Civil War 1 Paul Collier Revised January 1998 Published in Oxford Economic Papers 51 (1999), 168-83 Abstract A model of the economic effects of civil war and the post-war period is developed. A key feature is the adjustment of the capital stock through capital flight. Post-war this flight can either be reversed or continue, depending partly upon how far the capital stock has adjusted to the war. The model is tested on data for all civil wars since 1960. After long civil wars the economy recovers rapidly, whereas after short wars it continues to decline. We then consider the effect on the composition of economic activity, distinguishing between war-vulnerable and war-safe activities. Evidence for Uganda shows such compositional effects to be substantial. 1 World Bank, Washington D.C. Public Disclosure Authorized
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2 On the Economic Consequences of Civil War 2 1. Introduction This paper investigates the consequences of civil war for GDP and its composition. It focuses particularly upon the behaviour of the economy in the early years of a peace settlement. Civil wars are liable to be more damaging than international wars in several respects. They are inevitably fought entirely on the territory of the country. They are likely to undermine the state: both its institutions such as property rights, and its organisations such as the police. By contrast, as Herbst (1991) has argued, international wars tend to strengthen the state. The destruction wrought by warfare, and the erosion of institutions and organisations, constitute a deterioration in the economic environment. It might be expected that the ending of civil wars would produce a consequently large peace dividend. This paper argues that there is no presumption of a peace dividend from the ending of a civil war. Specifically, whether there is a peace dividend is shown to be contingent upon the duration of the war. The post-war growth rate can be either well above or well below that which would have occurred without the war. The end of civil wars can thus give rise to either a peace dividend or a war overhang effect. Section 2 sets out the theoretical framework. The argument is that civil war reduces the desired stock of factors of production. Some factors are better able than others to leave the country and this gives rise to a gradual exodus of such factors. The behaviour of GDP during civil war thus reflects a gradual adjustment to a sudden deterioration in the environment. Both during the war and after it, the effects are consequently on the growth rate of GDP rather than simply on its level. Section 3 tests the theory on a comprehensive data set including all of the civil wars which took
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Collier-99-oxford - Public Disclosure Authorized Public...

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