Economic Growth and Recovery after Civil Wars

Abstract

Using a fractional integration approach, we find that developing countries recover their economic growth faster than developed countries in response to a shock. The main finding is that longer civil conflicts are associated with a faster recovery process. To shed light on the channels, we explore correlations with components of GDP, military spending, institutions and aid and find heterogeneous effects of these channels by duration of conflict. Higher government spending is correlated with faster recoveries post longer conflicts and higher consumption spending is linked to faster recoveries following shorter conflicts. Military spending appears to be driving the government expenditure that makes countries recover from longer conflicts. More democratic institutions are associated with faster recoveries post short wars but slower recoveries following long wars. Finally, we can benchmark our recovery rates with respect to natural disasters, interstate wars and leadership change and we provide impulse response functions for a sample of countries in response to civil war.