Skip to main content

Conflict, Identity and Markets

Final Report Summary - CIDAM (Conflict, Identity and Markets)

The developing world has been plagued by many civil conflicts in the past thirty years. Understanding the roots and the consequences of these conflicts is crucial to fight poverty. This project has taken an economic approach to investigate the interplay between cultural, political and economic determinants of conflict in poor countries.

I have assessed the role of domestic and international factors. Domestic factors include variables such as ethnic and income heterogeneity, economic shocks and resource endowments.
I have proposed a new multi-dimensional indicator of diversity which takes into account that the salience of ethnic identity may depend on how much it overlaps with categories based on income, education, etc. An empirical application of this index to US states shows that the ranking of these states in terms of this index is significantly different from one purely based on ethnic fractionalization.
I have also proposed a test for racial discrimination in the justice system based on reversal patterns in appeal decisions by higher courts, and I collected original data for the US to perform this test.
As an exploration into possible policies to alleviate the costs of ethnic diversity, I have focused on inter-racial interaction and evaluated the impact of a policy of random roommate assignment adopted by the University of Cape Town. The outcomes I consider include psychological measures of racial prejudice, self reported attitudes and behaviors, and experimental games.

An important part of the project has been the empirical analysis of the economic and geographic determinants of conflict at the local level. I have constructed a gridded level dataset for Sub-Saharan Africa that combined high-resolution information of conflict events, crop cultivation, weather shocks and mineral endowments. Using spatial econometric techniques, I have estimated a model for the incidence of conflict that includes lags of the endogenous variables both in time and in space. The results suggest that local level climatic shocks during the growing season significantly increase the likelihood of conflict, and in a persistent way. Furthermore, conflict spills over to neighboring cells, thus magnifying the impact of climatic shocks.

Finally, I have analyzed the role of international players in civil conflict using a methodology based on financial markets’ reactions to news. The event study methodology has allowed me to address policy relevant questions such as: Which companies gain or lose from violent conflict? How can we detect violations of international embargoes? Specifically, I found positive event returns from conflict for companies headquartered in countries with high corruption and low transparency in arms trade, suggesting that these companies were more likely to violate arms embargoes. I also suggested a method to detect potential embargo violations based on chains of reactions by individual stocks.

Overall, the project has attempted to integrate economic, social and political explanations for the occurrence of social as well as violent conflict in developing countries. The outcome has comprised –in addition to scholarly publications– the creation of new datasets, it has proposed new methodological tools and it has offered some insights for designing economic policies to prevent conflict and fight poverty.