Abstract
The province of Aceh in Indonesia provides a promising case for studying the economic legacy effects of conflict given subnational district-level data on violence and gross domestic product. We demonstrate specific negative economic legacy effects of armed conflict despite a general peace dividend: whilst all districts in Aceh grow faster after conflict ends in 2005 than during the conflict, the districts that suffered relatively more from violence during the war grow relatively more slowly during peacetime than districts that experienced relatively little violence. These negative legacy effects are relatively short-lived, however, and are no longer statistically significant from 2009 onwards. JEL classification: O40, O47, Q54
Highlights
Many studies examine the nexus between economic growth and armed civil conflict
If the argument is correct that districts that saw relatively little violence during the conflict can function as credible counterfactuals in the post-conflict period for districts that saw relatively more violence during the conflict, it must be true that, across districts, there is no relationship between the extent of violence and gross domestic product (GDP) growth during the conflict period
Murdoch and Sandler (2004) find such spill-over effects for economic growth from one country affected by civil war to another; the same can be expected and is likely to be stronger within a country and so for a region that is small in geographic size as Aceh
Summary
Many studies examine the nexus between economic growth and armed civil conflict. Some investigate whether development failures, economic shocks and economic depressions increase the likelihood of conflicts (e.g. Bazzi and Blattman, 2014; Collier and Hoeffler, 2004; Gomes 2015; Miguel et al, 2004; Sharma 2006). There is a statistically significant negative correlation line with the correlation coefficient at 20.63, suggesting negative economic legacy effects: relatively violent districts grew more slowly than relatively peaceful districts in the post-conflict period.
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