Re-Evaluating the Economic Costs of Conflicts

Abstract

This paper studies the economic costs of conflicts at the country and ethnic group settlement level with light output data as measured by orbital satellites and conflict data spatially mapped to latitude and longitude coordinates. Using a worldwide data set of 7,704 individual ethnic group settlements of 862 ethnic groups in 177 countries, we find that conflicts strongly reduce light output in settlements directly affected by fighting over the period 1992-2008. In addition, conflicts have large negative spillovers both across and within countries: light output in settlements not directly exposed to fighting declines significantly once a conflict begins; neighboring countries also experience large negative effects. The negative effects of conflicts are particularly pronounced in Eastern Europe, but also observable in sub-Saharan Africa, Latin America, and South and South-East Asia. In contrast, conflicts have, on average, no negative effects on light output in the Middle East and in the West. We contrast these results with cross-country regressions with GDP data, which suggest much smaller negative effects of conflicts.