The Economic Impact of Violent Conflict

Much of the work published in Defence and Peace Economics (DPE) significantly contributes to our understanding of the economics of conflict. Analyzing the second decade of its existence, Arce and Kollias (2010) showed that over time, the emphasis of work in DPE has shifted significantly. One rising field examines the consequences of conflict. Related to this, in 2011, DIW Berlin hosted a conference examining The Economic Impact of Violent Conflict. This special issue is the result of that conference. While this may seem like a relatively narrow area, the interpretation of that simple combination of words can be quite broad. Some of the core work in the area focuses on the calculation of the global impact of conflict (Collier, 1999, Hess, 2003, Brück, De Groot, and Bozzoli, 2012). The work of Collier (1999) has had the greatest impact and continues to do so. He focuses only on civil conflicts because of the perceived economic strengthening effects of international conflict. Collier argues that civil conflict affects growth through (i) the destruction of resources; (ii) the disruption of infrastructure and social order; (iii) budgetary substitution; (iv) dissaving; and (v) portfolio substitution by foreign investors. The first four of these channels are expected to influence an economy only during conflict, whereas the final one is likely to continue having a lasting effect even after the restoration of peace. This led Collier to come to his theory that the length of the conflict is going to influence the impact of the postconflict period. In particular, he argues that long-running conflicts are more likely to be followed by an increase in growth, whereas short-lasting conflicts will suffer reduced growth rates over a longer period of time (known as a legacy effect). A separate strand of literature looks at specific case studies as exemplary of the occurrence of conflict. In this literature, there are two main lines of research: one employs so-called accounting techniques, while the other uses counterfactual analysis (Brück, De Groot, and Bozzoli, 2012). The accounting technique aims to calculate the total replacement value of goods destroyed as a result of conflict, whereas the counterfactual analysis estimates a conflict-free outcome and considers the gap between such a counterfactual and the actual situation as the costs attributable to conflict. Arunatilake, Jayasuriya, and Kelegama (2001) are an example of a range of country studies using the accounting methodology. They include direct costs like war-related expenditure, and add estimations