Forgone Investment: Civil Conflict and Agricultural Credit in Colombia

75 Pages Posted: 12 Jan 2021 Last revised: 30 Mar 2021

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

Do agricultural producers forgo otherwise profitable investments due to civil conflict? Answering this question is crucial to our understanding of the costs of violence, but requires the ability to measure farmers' willingness to invest and access to exogenous variation in conflict intensity. We exploit a unique administrative dataset from Colombia’s largest agricultural bank and the 2016 demobilization agreement between the Colombian government and insurgent group FARC to overcome these challenges. A difference-in-difference analysis yields three main findings: First, credit to small producers increases after the agreement in municipalities with high FARC exposure (17% over sample mean). Higher loan applications drive this increase, with no change in supply-side variables. Second, a simple theoretical framework combined with rich information on characteristics of loan applicants and projects (including credit scores and loan outcomes) suggests that changes in project returns, but not in risk, underlie the increase in credit demand. Third, conflict is not the binding constraint on investment in areas with low access to markets. Higher investment, unchanged default rates and additional evidence of increased nighttime luminosity after the end of conflict imply an overall positive economic impact.

Keywords: Conflict, Investment, Credit, Agriculture, FARC

JEL Classification: D74, G21, O13, O16

Suggested Citation

de Roux, Nicolás and Martinez, Luis, Forgone Investment: Civil Conflict and Agricultural Credit 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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