Some Economic Consequences of the Transition from Civil War to Peace

150 Pages Posted: 20 Apr 2016

See all articles by Jean-Paul Azam

Jean-Paul Azam

University of Toulouse I - Advanced Research in Quantitative Applied Development Economics (ARQADE)

Paul Collier

University of Oxford - Blavatnik School of Government

David Bevan

University of Oxford

Stefan Dercon

University of Oxford - Department of Economics

Jan Willem Gunning

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Sanjay Pradhan

World Bank

Date Written: December 1, 1995

Abstract

Drawing on evidence from Africa - especially Ethiopia and Uganda - the authors of this volume draw conclusions about economic policy in the aftermath of civil war. A sample of conclusions follows. Civil wars differ from international wars. They are informal, often have no clear beginning and end, weaken rather than strengthen the authority of the state, and leave two unreconciled armies to be demobilized within one territory. Civil wars erode the institutions of civil society, leading to a decline in the stock of social capital, which takes some time to restore. Private investment and government revenue are slow to recover, and military expenditures are not easily reduced. As a result, there is little or no peace dividend in the short run. The period of transition to peace is a particularly suitable time for radical policy reform, despite the high degree of polarization typical in countries engaged in civil war. And speedy reform, far from increasing uncertainty, is likely to reduce it. After a civil war, private agents are fearful both of each other and of the government. This, perhaps even more than physical damage to infrastructure, hinders private-sector-led recovery, as irreversible investment is delayed despite being financeable. The transition to peace is primarily the transition from fear and the defensive responses that became ingrained in wartime. The peace dividend comes as a gradual recovery of confidence induces repatriation of financial and human capital. Such confidence can be boosted by the early sequencing of investment-sensitive policy reforms and by preserving low inflation through direct consumer price index targeting. Lack of confidence can be compensated for by temporary undervaluation of the exchange rate, or however, may prove more difficult to make credibly time-bound. Finally, aid can permit accelerated rehabilitation of the infrastructure (especially transport networks) needed to return to a market economy. Contrary to the studies hypothesis, the authors found that demobilization - at least in Uganda - did not lead to a significant upsurge in insecurity. In the short term, demobilization significantly reduced crime, unless the demobilized lacked access to land. If the demobilized returned to their home areas and were given some assistance, with identifiable exceptions they were able to find income-earning opportunities.

Keywords: Debt Markets, Emerging Markets, Economic Theory & Research, Investment and Investment Climate

Suggested Citation

Azam, Jean-Paul and Collier, Paul and Bevan, David and Dercon, Stefan and Gunning, Jan Willem and Pradhan, Sanjay, Some Economic Consequences of the Transition from Civil War to Peace (December 1, 1995). World Bank Policy Research Working Paper No. 1392. Available at SSRN: https://ssrn.com/abstract=1149065

Jean-Paul Azam

University of Toulouse I - Advanced Research in Quantitative Applied Development Economics (ARQADE) ( email )

21 Allee de Brienne
Toulouse, 31000
France

Paul Collier

University of Oxford - Blavatnik School of Government ( email )

10 Merton St
Oxford, Oxfordshire OX1 4JJ
United Kingdom

David Bevan

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Stefan Dercon

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
44 1865 271084 (Phone)
44 1865 271094 (Fax)

Jan Willem Gunning

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+ 310 20 444 6141 (Phone)
+ 310 20 444 6004 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Sanjay Pradhan

World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

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