Working Paper: CEPR ID: DP4668
Authors: Massimo Guidolin; Eliana La Ferrara
Abstract: This Paper studies the relationship between civil war and private investment in a poor, resource abundant country using microeconomic data for Angola. We focus on diamond mining firms and conduct an event study on the sudden end of the conflict, marked by the death of the rebel movement leader in 2002. We find that the stock market perceived this event as ?bad news? rather than ?good news? for companies holding concessions in Angola, as their abnormal returns declined by 4 percentage points. The event had no effect on a control portfolio of otherwise similar diamond mining companies. This finding is corroborated by other events and by the adoption of alternative methodologies. We also use nonparametric techniques with daily data on the intensity of conflict, and find that moderate levels of violence increased the abnormal returns of the ?Angolan? portfolio. We interpret our results in the light of the widespread rent seeking in the Angolan mineral industry.
Keywords: Angola; Civil War; Event Studies; Rent-Seeking
JEL Codes: G14; O12; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| absence of decline in control portfolio (G11) | strengthens argument for specific market reaction in Angola (G19) |
| moderate levels of violence during the conflict (D74) | increased abnormal returns (G14) |
| end of the war (N44) | increased competition and government extraction of rents (H13) |
| end of civil war marked by the death of Jonas Savimbi (F51) | decline in the abnormal returns of diamond mining companies in Angola (L72) |
| end of civil war (N44) | perception of negative impact on firms holding concessions (F69) |