Caught in a Trap: Simulating the Economic Consequences of Internal Armed Conflict

• Authors: Hannes Mueller.
• BSE Working Paper: 110873 | September 23
• Keywords: economic growth , Economic development , armed conflict , conflict trap
• JEL codes: D74, O11, O40
• economic growth
• Economic development
• armed conflict
• conflict trap

This study proposes a statistical model to capture the economic impact of the “conflict trap” phenomenon – a period of recurring outbreaks of internal armed conflict. The framework captures conflict dynamics through a discrete-time Markov process. We estimate the transition matrix and link the states to GDP per capita growth distributions through country fixed effects regressions. This allows for simulating the distribution of developmental effects of the conflict trap. We find that the trap has a large detrimental effect on long-term economic development, reaching a relative decline of GDP per capita of over 50% in the most affected countries.