Uncertainty, Peace, and Investment: Evidence from Credit Microdata in Colombia

78 Pages Posted: 6 Apr 2021 Last revised: 6 Feb 2024

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

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Date Written: December 29, 2023

Abstract

We study the causal effect of the formal cessation of conflict on investment. Our difference-in-difference strategy combines the 2016 peace agreement between the Colombian government and the FARC insurgency with pre-existing differences in FARC exposure across municipali-ties. Using administrative data from a large bank serving agricultural producers, we document a sizable increase in business credit in FARC municipalities after the peace deal is finalized. Higher loan applications for long-term investments drive this increase, without any change in supply-side factors. Investment only increases in municipalities located close to markets and does not increase during the peace negotiations, despite a meaningful decline in violence. This indicates that uncertainty is a major deterrent for investment and that peace is complementary to market access. There is no change in loan misuse or delinquency, which suggests that the new loans correspond to profitable projects. Higher night-time luminosity provides further evidence of an economic peace dividend.

Suggested Citation

de Roux, Nicolás and Martinez, Luis, Uncertainty, Peace, and Investment: Evidence from Credit Microdata in Colombia (December 29, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2021-36, Available at SSRN: https://ssrn.com/abstract=3817634 or http://dx.doi.org/10.2139/ssrn.3817634

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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