The Blessings of Security: Economic Consequences of Conflict

Date

2011-06-09

Authors

Wallen, Andrew T.

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Abstract

Obvious effects from intra-state conflict include the death of those swept up in the conflict and the destruction of physical capital. Perhaps less obvious is the damage done to trade and the distortion of resource expenditures away from their peacetime efficient uses. This dissertation addresses these less obvious results of conflict. The findings support the idea that an increase in violence causes a decrease in market integration. Similarly supported is the idea that a weakening of the state‘s ability to enforce property rights yields a drop in the percent of household expenditures on durable goods as a percent of total expenditures. A modified Diamond (1987) model allowed for the prediction that when there are close substitutes with consistent price differentiation, the high priced good will increase in price while the low priced good will not change in price as a result of violence. While this prediction may be supportable with better market information, price data from Iraq did not provide support. From a broad policy perspective, the results of this dissertation give priority to physical stability over economic stability when the embattled state is determining where to expend its limited resources. Counterinsurgency policy and progress can be evaluated using the methodology in this dissertation in that it provides the framework for a diagnostic tool kit that could be used to determine if violence has reached a point where economic wellbeing is severely impacted. The ideas in this dissertation could have application beyond war to, for example, natural disasters or high crime areas. That being said, within the context of this paper the discussion is specifically focused on addressing the type of conflict found in insurgency, or civil war.

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Keywords

Conflict, Hobbes, Search Cost, Violence, Market Integration, Durable Goods

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