The New Palgrave Dictionary of Economics

Living Edition
| Editors: Palgrave Macmillan

Growth and Civil War

  • Paul Collier
Living reference work entry
DOI: https://doi.org/10.1057/978-1-349-95121-5_2318-1

Abstract

Civil war is obviously damaging for both society and the economy. The social consequences are often difficult to measure: for example, people die as a result of disease and are traumatized through rape or experience as child soldiers. However, the consequences for the economy are much more amenable to quantification, and a key economic research issue has been to try to classify and quantify the economic damage.

Keywords

Capital flight Civil war Economic growth Foreign aid Human capital Predation Social cost Spillovers 

JEL Classifications

O4 

Civil war is obviously damaging for both society and the economy. The social consequences are often difficult to measure: for example, people die as a result of disease and are traumatized through rape or experience as child soldiers. However, the consequences for the economy are much more amenable to quantification, and a key economic research issue has been to try to classify and quantify the economic damage.

There are three consequences of civil war for economic growth. The most obvious is the loss of growth experienced by the country during the war. War is destructive of both the capital stock and normal economic activity. In addition to inflicting purposive destruction, rebel forces typically prey on economic activity within their military reach, since they have no official sources of finance. Government forces may adopt the same tactics: typically, lines of command are too loose to prevent the diversion of military force into decentralized predation. In such circumstances citizens with assets radically reduce their investment and resort to capital flight abroad, and poorer citizens may similarly retreat into subsistence activities that are less vulnerable. The consequences of civil war for the growth of gross domestic product (GDP) have been estimated from time series regressions, a typical result being that the annual growth rate is reduced by around 2.3 percentage points (Collier 1999). Since the typical civil war lasts around seven years, by the end of the conflict the country is around 15 per cent poorer than it would have been had it remained at peace.

The second consequence for growth is the legacy of war – effects that arise after the war has ended. Peace does not usually enable the economy to rebound swiftly to its previous growth path. Even if the post-conflict peace is secure the economy will take several years to rebuild its capital stock, and some costs, such as a loss of human capital, may be irreversible. More typically, the legacy of civil war creates major problems for economic recovery. The peace itself may be insecure: around 40 per cent of post-conflict situations revert to conflict within a decade. The breakdown in social order during civil war allows opportunistic behaviour to become more prevalent. Both the high macro-risk of conflict reversion and the high micro-risk of being the victim of opportunism inhibit investment, and capital flight typically continues. These effects dampen and can potentially prevent post-conflict recovery. Often, post-conflict growth exceeds normal growth by around 1.1 per cent, so that after a war the economy needs about double the length of time of the civil war before it rejoins its long-term path (Collier and Hoeffler 2004a). Until then the country is poorer than it would have been without the war, and so this shortfall should properly be counted as a cost. Because recovery is so slow, most of the costs of a civil war accrue after it is over. Aid accelerates growth during recovery and has been found to be particularly effective in post-conflict situations. This was indeed the original rationale for aid: the World Bank was initially going to be named the ‘International Bank for Reconstruction’.

The third consequence for growth is the effect of civil war on other countries. Typically, the adverse effects of a civil war spread far beyond the borders of the afflicted country: even countries that are not direct neighbours suffer significant reductions in growth (Murdoch and Sandler 2002). Although the reduction in the growth rate of neighbours is much lower than that experienced by the country itself, because many countries are affected, the overall ‘spillover’ costs to neighbours arising from this loss of growth tend to exceed those experienced by the country itself.

Taken together, these consequences for growth have two important implications. One is that the true economic cost of civil war is massive even before one takes into account the social costs. By applying a conventional discount rate to the lost growth and allowing only for costs to direct neighbours, Collier and Hoeffler (2004b) estimate the value of the typical cost of a civil war in a low-income country at an astounding 64 billion dollars. The other implication is that most of these losses are externalities to the people taking the decisions at the time of the conflict: the losses accrue to neighbours and to a future generation. Hence, decisions to start civil wars are unlikely to reflect a true social calculus of the probable consequences of war.

Bibliography

  1. Collier, P. 1999. On the economic consequences of war. Oxford Economic Papers 51: 168–183.CrossRefGoogle Scholar
  2. Collier, P., and A. Hoeffler. 2004a. Aid, policy and growth in post-conflict societies. European Economic Review 48: 1125–1145.CrossRefGoogle Scholar
  3. Collier, P., and A. Hoeffler. 2004b. Conflict. In Global crises, global solutions, ed. B. Lomborg. Cambridge: Cambridge University Press.Google Scholar
  4. Murdoch, J.C., and T. Sandler. 2002. Economic growth, civil wars and spatial spillovers. Journal of Conflict Resolution 46: 91–110.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2008

Authors and Affiliations

  • Paul Collier
    • 1
  1. 1.