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Investment and Institutions in Post-Civil War Recovery

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Abstract

Theories of post-civil war recovery predict a ‘peace dividend’ via the re-accumulation of capital per worker. I suggest that such a recovery will occur only when quality institutions have been established. I couple data on civil wars from 1965 to 2000 with the measure of legal structure and protection of private property from the Economic Freedom of the World Index. The results from growth regressions using an interaction between an index of institutions, and investment/GDP confirm that weak institutions inhibit recovery in the post-conflict environment, providing empirical support for a model of conflict recovery via capital accumulation, conditional on institutions.

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Notes

  1. Capital stock can only be measured by making assumptions about a depreciation rate. The depreciation rate is unobservable and unstable during a civil war; thus, the capital stock cannot reliably be measured in this context.

  2. For Collier’s analysis end dates of conflicts in Algeria, Angola, Burundi, Columbia and Sri Lanka are set to 1999 when in fact these conflicts continued. These dates are corrected using the Battle-Related Deaths data set (Lacina and Gleditsch 2005).

  3. Data are collected for five-year periods and is backward looking. Thus data for the 1970 period are used for years from 1966 to 1970.

  4. The marginal effect is calculated as: ME(X1)=β1+β3 × X 2 where β3 is the coefficient on the interaction term as in equation 2.

  5. A density plot for post-conflict countries of the index of legal institutions and security of private property from the Economic Freedom of the world index is presented in Figure 1.

  6. Collier and Hoeffler (2002) find that higher primary commodity exports as a percentage of GDP increase the risk of civil war.

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  1. Economics, Suffolk University, 10 Winchester Court, Medford, 02155, MA, USA

    Colin O’Reilly

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O’Reilly, C. Investment and Institutions in Post-Civil War Recovery. Comp Econ Stud 56, 1–24 (2014). https://doi.org/10.1057/ces.2013.28

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