Business as Unusual. An Explanation of the Increase of Private Economic Activity in High-Conflict Areas in Afghanistan

Friday, 10 July, 2015
Abstract: 
In this paper, Ciarli, Kofol, and Menon (2015) use a unique dataset that combines spatial detailed information on conflict events and on households' activity, to show a positive and significant correlation between violent conflict and entrepreneurship in Afghanistan. They build spatial and IV identifications to estimate the effect of different measures of conflict on the investment in a range of private economic activities of nearby households. The results consistently show that the level of conflict, its impact, and to a lesser extent its frequency, increase the probability that a household engages in self-employment activities with a lower capital intensity and in activities related to subsistence agriculture, and reduce the probability of investing in higher capital self-employment. Overall, by increasing entrepreneurship, conflict pushes the country towards a regressive structural change. However, the magnitude of most of the effects is quite small. The paper contributes to a literature that, due to data constraints and identification issues, has not yet delivered conclusive evidence.