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Macroeconomic Policy and Performance in Post-Conflict

The three papers deal with the economic consequences of civil wars and peace. Some discussion on what causes CW'sAll focus on the costs of CW's Not much on what triggers peace (or the role of economic/social variables)All measure dividends of peaceRole of foreign aid (after the end of CW)Shared

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Macroeconomic Policy and Performance in Post-Conflict

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    1. Macroeconomic Policy and Performance in Post-Conflict Mauricio Cárdenas, Fedesarrollo Ninth Annual Global Development Conference Brisbane, January 30, 2008

    2. The three papers deal with the economic consequences of civil wars and peace Some discussion on what causes CW’s All focus on the costs of CW’s Not much on what triggers peace (or the role of economic/social variables) All measure dividends of peace Role of foreign aid (after the end of CW) Shared methodology (event-studies) (merits of pacification)(merits of pacification)

    3. “Political Violence and Economic Growth” Bodea and Elbadawi (2007) Nice idea: Political violence as a process Three stages: Riots (low), Coups d’Etat (medium), CW (high). Model: Random realizations of political violence destroy K. Suggested extensions: Probability of violence is exogenous (there are feedback effects between political violence and economic growth) Productivity seems a key part of the story

    4. Bodea and Elbadawi (2007): Empirical strategy Step 1: Estimate the determinants of political violence (multinomial logit), and then use the model to predict probabilities. Interesting: Economic variables (y, oil) explain CW, but not Riots or Coups. Suggestions: Per capita GDP Growth not included (Why?) Worth exploring the “political violence process” hypothesis (i.e. is CW more likely if Riots or Coups have occurred?).

    5. Bodea and Elbadawi (2007): Results The probability of CW reduces growth considerably (moderately in the case of Riots) The probability of Coups does not seem to have economic consequences. Much emphasis on a somewhat unrelated issue: Ethnic fractionalization is associated with lower growth, but not a problem if democracy is non-factional See if this is related to the probability of political violence

    7. “The Aftermath of Civil War” Chen, Loayza and Reynal-Querol (2007) Consequences of CWs (Internal Armed Conflicts) Pre vs. Post-Conflict Time trends in Post-Conflict Is the duration of Conflict relevant? Absolute differences and wrt two control groups

    8. Chen, Loayza, and Reynal-Querol (2007): Results Post-conflict is characterized by: Lower GDP per capita Higher per capita GDP growth (3.4 pp) Higher investment share (but not much) Higher inflation (10.6 pp) Duration of conflict does not seem to matter Time trends in post-conflict: Positive on GDP per capita Negative on military expenditures and inflation

    9. Slope effects of peace are not obvious

    10. More slope results

    11. Results

    12. Extensions How much do countries deviate from these average patterns? What determines those deviations? What drives the end of conflict, and the beginning of peace? Is there a role for economic, political, and social variables. Which sectors gain in the reallocation of government funds after the decrease in military expenditures. Does this matter?

    13. “Foreign Aid, the Real Exchange Rate, and Growth in the Aftermath of Civil Wars” Elbadawi, Kaltani, and Schmidt-Hebbel (2007) General idea: End of CW brings foreign aid, which helps growth. However, foreign aid may cause “Dutch Disease”. Events: Conflict (-4, -1) Peace (0, 1) Post-conflict I (2, 5) Post-conflict II (6, 9) Aid increases during Peace, and then falls. Measure Real exchange rate misalignment

    14. Estimation of Differences in Variable Means across Pairs of Conflict and Post-conflict Periods

    15. Elbadawi, Kaltani, and Schmidt-Hebbel (2007): Empirical strategy Growth regression on: Aid, Aid2 RERMIS Peace, Post-conflict I, Post-conflict II Aid*RERMIS Aid*Peace, A*Post-conflict I, A*Post-conflict II RERMIS*FD

    16. Elbadawi, Kaltani, and Schmidt-Hebbel (2007): Results Peace growth effects are not permanent (completely reversed by Post-conflict II) Aid has a positive but diminishing returns RERMIS bad for growth A*RERMIS has a negative coefficient, but this does not mean that “aid lowers growth in a macroeconomic environment that allows for RER overvaluation”

    17. Final thoughts CW is costly (more than other forms of political violence) End of CW accelerates growth, but only temporarily. Productivity seems a key channel. End of CW lowers inflation and frees military expenditures. End of CW improves institutions and security in other dimensions Foreign aid helps growth (no evidence of a Dutch Disease effect). Consider effects of CV and Peace on wellbeing.

    18. Does victimization affect overall wellbeing? Multi-country analysis Victimization in the Gallup Survey: Feeling of being safe: Do you feel safe walking alone at night in the city or area where you live? Victim of petty crime: Have you had money or property stolen from you or another household member within the past 12 months? Victim of crime: Have you been assaulted or mugged within the past 12 months? Presence of gangs: Are there gangs in the area where you live? Presence of drug dealing: Are there illicit drug trafficking or drug sales in the area where you live?

    19. Dependent variable: Satisfaction with freedom to choose (1 satisfied, 0 if not) Probit estimation - errors clustered by country

    20. Dependent variable: Overall satisfaction with life (1-10, ladder question) OLS estimation - errors clustered by country

    21. What this exercises shows is that: Perceptions of insecurity and episodes of victimization reduce reported wellbeing. Particularly true for wellbeing related to individual freedom rather than overall life satisfaction. This effect does not change with gender, age or income, meaning that victimization affects people regardless of their socioeconomic characteristics.

    22. Macroeconomic Policy and Performance in Post-Conflict Mauricio Cárdenas, Fedesarrollo Ninth Annual Global Development Conference Brisbane, January 30, 2008

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