Forgone Investment Amid Conflict: Evidence from Credit Microdata in Colombia

77 Pages Posted: 12 Jan 2021 Last revised: 26 May 2022

See all articles by Nicolás de Roux

Nicolás de Roux

Universidad de los Andes - Department of Economics

Luis R. Martinez

University of Chicago - Harris School of Public Policy

Multiple version iconThere are 3 versions of this paper

Date Written: March 29, 2021

Abstract

We study the causal effect of conflict on investment using a unique administrative dataset from a large bank serving rural producers in Colombia. Our difference-in-difference strategy exploits the 2016 peace agreement between the Colombian government and insurgent group FARC, combined with pre-existing differences in FARC exposure across municipalities. We show that the number of business loans increases in municipalities with historical FARC presence after the peace agreement. More loan applications drive this increase, with no change in supply-side variables. However, higher investment is only observed in municipalities located close to markets and does not materialize before the peace agreement is finalized, despite a large decline in violence during the preceding negotiations period. A simple theoretical framework combined with rich information on the characteristics of loan applicants and projects (including credit scores and delinquency rates), as well as night-time lights, suggests that conflict hinders investment mostly by lowering project returns.

Keywords: Conflict, Investment, Credit, Agriculture, FARC

JEL Classification: D74, G21, O13, O16

Suggested Citation

de Roux, Nicolás and Martinez, Luis, Forgone Investment Amid Conflict: Evidence from Credit Microdata in Colombia (March 29, 2021). Available at SSRN: https://ssrn.com/abstract=3725231 or http://dx.doi.org/10.2139/ssrn.3725231

Nicolás De Roux

Universidad de los Andes - Department of Economics ( email )

Carrera 1a No. 18A-10
Bogota, AA4976
Colombia

Luis Martinez (Contact Author)

University of Chicago - Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

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