Working Paper: CEPR ID: DP16984
Authors: Mathieu Couttenier; Nathalie Monnet; Lavinia Piemontese
Abstract: A novel approach is presented for estimating the economic costs of conflict, in which the production network serves a first-order mechanism through which the disruptive effect of localized conflict spreads to firms in peaceful areas. The method is applied to the Maoist insurgency in Eastern India during the period 2000-2009. We document the negative impact of conflict on firms' behavior, which spreads to firms in peaceful areas through input-output connections. We then apply a model of production networks in order to quantify the overall impact of conflict by taking these propagation effects into account. We find that the Maoist insurgency results in an average aggregate output loss of 3.8 billion USD per year. Interestingly, 73% of the loss is explained by network propagation.
Keywords: conflict; firms; production network; aggregate output loss
JEL Codes: D22; D74; O12; O47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Maoist insurgency (O17) | firms in conflict-affected areas incur greater costs (Q34) |
| firms in conflict-affected areas incur greater costs (Q34) | firms report losses due to theft (K42) |
| firms in conflict-affected areas incur greater costs (Q34) | firms pay protection money (K42) |
| firms in conflict-affected areas incur greater costs (Q34) | firms incur security costs (G32) |
| Maoist insurgency (O17) | average price of products produced by firms in conflict areas is higher (P22) |
| Maoist insurgency (O17) | quantity produced by firms in conflict areas is lower (Q34) |
| Maoist insurgency (O17) | firms not directly in conflict zones experience negative effects (F51) |
| Maoist insurgency (O17) | average annual output loss due to the Maoist insurgency (P24) |
| network propagation effects (D85) | average annual output loss due to the Maoist insurgency (P24) |
| Maoist insurgency (O17) | firms change actions (inaction, supplier change, input bundle change) (D21) |