Rebuilding energy infrastructures and the manufacturing sector in post-conflict countries

Abstract

Conflicts severely depress the manufacturing sector of affected countries and jeopardize its recovery once peace is re-established. Yet, I claim that donors' commitment to restore and develop infrastructures to generate, distribute, store and manage energy may boost an upswing of the manufacturing sector in post-conflict settings. This is because, first, as opposed to conventional developmental aid, post-conflict aid is proven to be unusually productive and unlikely to trigger the appreciation of the real exchange rate. Second, because restoring and enhancing energy infrastructures is expected to increase the return on investments in the manufacturing sector. To test my hypothesis, I resort to a cross-section time-series two-stage least squares multivariate analysis covering 45 post-conflict countries between 1970 and 2013. I find that donors' commitment to rebuild and enhance energy infrastructures in post-conflict countries has positive effects on the manufacturing sector of recipient countries both in the short and in the medium term. These findings contribute both to shed more light on the impact of foreign aid in fragile and post-conflict countries, and to the literature investigating the impact of electrification in developing economies.