The Effect of Armed Conflict on Savings Rates: International Evidence from 1980 to 2015

Abstract

Abstract Economic growth theory highlights the importance of saving rates to explain the long-run economic performance of economies. While economic theory has provided an analytical and empirical framework to understand the determinants of saving rates, one of the limitations is that it excludes from the analysis the potential effects of armed conflict and political instability, although it has been demonstrated that such situations can affect intertemporal preferences in terms of consumption and saving. Using a sample of 55 countries with/without conflict from 1980 to 2015, we analyze whether aggregate savings rates are negatively correlated with the existence, intensity, and duration of an armed conflict. The results indicate that countries that have suffered some type of conflict exhibit a saving rate 2.7% lower on average than the rate exhibited by countries that have not suffered such conflict. Additionally, if there is a high-intensity conflict, the saving rates decreases 2.5% more relative to countries that experience low-intensity conflict. Finally, we found a nonlinear relationship between saving rates and conflict duration, suggesting that the impact of conflict on savings decreases with time. These results extend the literature on the effects of armed conflicts on the long-run economic growth.