Chapter 6 Civil Wars in the Developing World

1. Chapter 6Civil Wars in the Developing World ECON 335 Frederica Shockley

2. War of Pygmies • "Peace with Germany and Japan on our terms will not bring much rest.... As I observed last time, when the war of the giants is over, the wars of the pygmies will begin." Winston Churchill

3. International Wars ↓Civil Wars ↑ • War: armed conflict that results in ≥ 1,000 deaths. • Past 200 years, • Incidents of international wars ↓ • Incidents of Civil Wars ↑ especially in past 40 years. • Century ago conflicts were primarily between nations & 90 % casualties were soldiers. • Today almost all wars are civil & 90 % of the victims are civilians.

5. Golden Arches Theory • No 2 countries have gone to war after they opened their McDonald’s restaurants, according to Pulitzer Prize Winning Journalists Thomas Friedman.

6. What about Russia? • But Russia has McDonalds. Isn’t it at war in Chechnya? • Civil wars don’t count! St. Petersburg, Russia, June 2005

7. Why McDonald’s? • Maybe McDonalds is a proxy measure for a developing middle class that is more concerned about its economic well-being than vindictiveness.

8. Golden Arches? • In 2002 India & Pakistan were on the verge of nuclear war. • Many international countries threatened to leave India. • For the first time India’s leaders had to consider the loss of industries if they went to war. • Although Cost of military action ↓ (Table 1.2), opportunity cost of war ↑.

9. Trade ↑ → International Wars ↓

10. No Iron Law for Developing Countries • The Iron Law of War (war can benefit an economy) only applicable to developed countries. • Civil conflict is a major impediment to development in many less-developed countries (LDC’s).

11. Costly Civil Wars • Average global economic cost of civil wars each year = $64 B per war. • Longer conflicts, • Reductions in real GDP, • Loss of Government services • Forced migrations, & • Conflict spillover into neighboring countries.

12. Duration • Today average civil war = 8 years. • Prior to the 1980s, the average = 4 years.

13. Flight of Capital • On average, full economic recovery can take a decade after a war's end. • Recovery rate increases as duration increases. • Difference in recovery rates is the result of capital continuing to exit the country upon the conclusion of a short conflict, and capital returning to the country after an extended conflict.

14. Slower Growth Reduces Tax Revenues • During the conflict, real GDP typically grows 2.2 percentage points a year < in peacetime. • This downward trend negatively affects growth of per capita government revenue, • Lower growth of per capita government spending on education and health. • This diversion of government expenditures to arms reduces welfare by another 18 % of GDP

15. Civil War → Poverty ↑ • Typical civil war leaves a country 15 percent poorer and with perhaps 30 percent more people living in absolute poverty.

16. Rising Health Care Cost • Average health care cost = $6 B per civil war due to: • Collapsing health care system; • Forced migration.

17. Conflicts → Malaria ↑ & Forced Migration ↑

18. Civil War Spillovers • Typical country in civil war has 2.7 neighbors on its borders. • Average loss due to reduced trade & foreign investment often 115% of GDP. • Neighbors also forced to increase spending on arms.

19. Economic Causes of Civil Wars • Poverty • Resource exploitation; • Greed; • Extraction of resources from ethnic minority; • Inequality.

20. Poverty ↑→ Likelihood of War ↑

21. Why Poverty? • Poorer societies have fewer policing resources. • Poverty ↓ → opportunity cost of war ↑. • Lack of resources → migration to better economy → conflict. • Corrupt government → poverty → conflict.

22. Most Powerful Risk Factor • Substantial share of GDP from export of primary commodities • Natural resources, e.g., minerals, jewels, or oil. • Countries most at risk when primary­commodity dependence reaches 26% GDP. • Raises the risk from 14 % to 23 %.

23. Why Commodities? • Resources concentrated in region may lead a dissatisfied group to believe that a seceding state could be viable & prosperous, e.g. southern Sudan. • Natural resources can create inequalities, e.g. Saudi Royal Family & rest of Saudis.

24. Why Commodities? • Natural resources can provide financing to rebel groups, e.g., "conflict diamonds" in Sierra Leone. Dying for a Diamond

25. Why Commodities? • Governments that rely on natural resources rather than taxation for financing, e.g. Saudi Arabia, have little incentive to create representative government. • “No representation without taxation,” according to Thomas Friedman.

26. Why Commodities? • Economies dependent on a few natural resources are more susceptible to trade shocks. • Dissatisfaction within groups that suffer from such shocks can lead to conflict.

27. Why Greed? • Rebel group's desire for profit may also provoke and perpetuate conflict. • When civil war resumed in Angola in 1993, the rebel National Union for the Total Independence of Angola (UNITA) took about $4B from illegal diamond sales.

28. War Lucrative for Some • Civil war is bad for the economy as a whole, but somepeople actually benefit. • If some people do well during civil war, they may lack an incentive to restore peace.

29. Civil War Provokes Greed • Because life during a civil war is unpredictable, people think only in the short term. • People will have less incentive to maintain a reputation of trustworthiness.

30. War Provokes Greed • In 1994 the Ilutu-dominated government in Rwanda began killing the Tutsi ethnic group. • Genocide: government-sanctioned, systematic killing of an ethnic group. • After the genocide began, many joined the killing for personal economic gain

31. Why Ethnic Dominance (Table 6.1) • If the dominant group < 90% of the population, this contributes to the chance of conflict because the dominant group may benefit from transferring resources from the minority group. • If 1 ethnic group ≥ 90% of the population, this lessens the chance of conflict because the minority group is so small that the benefit of exploiting them may be < the cost.

33. Why Inequality? • Vertical inequality is income inequality between people. • Horizontal inequality isinequality between ethnic, religious, political or regional groups. • Vertical equity does not usually lead to war, but horizontal inequality can, e.g. Sunnis & Shias.

34. Small Arms Transfers to Developing World • Most civil wars fought with small arms. • The AK-47 is the most popular choice: • Deadly; • Reliable; • Cheap.

35. Supply (S) of AK-47’s • AKA Kalashnikov’s, Soviet Union began producing in 1949 for its own army & exported to allies. • Primary market: • Soon other countries began producing clones. • AK 47’s produced in many countries & sold in competitive market.

36. Secondary market AK 47’s • Major source for AK 47’s in many countries. • Iran exports its rifles to Sudan. • Greece exports its rifles to Burundi and Libya. • These countries then export the rifles to Algeria, Egypt, Lebanon, and the West Bank. • During the 1980s, the U.S. government bought AK-47s produced in China and Egypt and then supplied them to Islamic guerrillas fighting the Soviet Union in Afghanistan.

37. S ↑→ P ↓ • In Kenya price of an AK 47 dropped from 10 cows in 1986 to 2 cows in 2001. • In some places AK 47 sells for as little as $15 or a bag of grain.

38. Demand for AK-47’s • Price depends upon D as well as S. • In legal markets, e.g. U.S., a used AK-47 will sell for $200 to $400. • Black market prices < $100 usually indicate a sudden arrival of peace after a period of intense conflict.

39. Thailand has 1 of largest black markets. • AK 47’s bought illegally in Black market. • Thailand exports to Sri Lanka, the Philippines, Indonesia & the Kashmir region between India & Pakistan.

40. Prices Signal • Black market prices > $1,000 may be warning of imminent conflict. • High prices mean that people are desperate to own weapons. • E.G., Somalia in 1992, the cost of AK-47 fell from $300 to $100 in a few days as U.S. Marines massed offshore & to $50 after they landed. Prices rose to about $200 after U.S. withdrawal.

41. Global Equilibrium • About 500 M small guns circulating around world. • Small arms cause > 1,000 deaths per day. M-16

42. Middle-Eastern & Asian Countries are big importers of arms.

44. Lessons from the Case Studies • Ethnic and tribal differences have very little to do with the conflicts' origins. • E.G., the conflict in Sierra Leone due to: economic inequality, government abuse & corruption, & spillover of conflict into neighboring countries.

45. Another Lesson • Though government corruption may be a fundamental cause of underdevelopment, conflict also plays a role by delaying the development process.

46. More Lessons • Sierra Leone shows that civil conflicts in Africa are intimately related to regional interstate conflicts. • Conflict appears to contribute to the external indebtedness of a LDC. However, conflict is neither the sole nor the primary cause of the external indebtedness of LDC.

50. Peacekeeping • Peacekeeping uses military personnel to observe & monitor ceasefire. • Soldiers are typically lightly armed & powerless to do much if either side chooses to resume hostilities. • Lack of force means that peacekeepers require the consent ofboth sides