Working Paper: NBER ID: w19266
Authors: Eli Berman; Joseph Felter; Ethan Kapstein; Erin Troland
Abstract: This paper explores the relationship between investment and political violence through several possible mechanisms. Investment as a predictor of future violence implies that low private sector investment today provides a robust indicator of high violence tomorrow. "Rent-capture" or predation asserts that investment increases violence by motivating extortion by insurgents. A "hearts and minds" approach links investment to political violence in two possible ways: through an opportunity cost mechanism by which improved economic conditions raise the cost of rebel recruitment; and through a psychological "gratitude" effect which reduces cooperation of noncombatants with rebels. Finally, tax capture implies that government will increase coercive enforcement in an attempt to control areas where increased investment increases tax revenue. We lay out these mechanisms in a framework with strategic interaction between rebels, communities, government and firms within an information-centric or "hearts and minds" counterinsurgency model. We test these mechanisms in the context of the Philippines in the first decade of this century, using information on violent incidents initiated by both rebels and government and new data on industrial building permits, an indicator of economic investment. Increases in investment are positively correlated with both rebel and government initiated violence. In the context of our theory that constitutes unequivocal evidence of predation, is consistent with tax capture, and weighs against predictive investment, opportunity costs or gratitude being a dominant effect.
Keywords: Investment; Political Violence; Philippines; Insurgency; Economic Development
JEL Codes: F52; F54; H22; H25; H41; H56; K42; N47; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased investment today (E22) | decreased insurgent violence in the future (D74) |
| increased investment (E22) | increased rebel violence (D74) |
| increased investment (E22) | increased government-initiated violence (H56) |
| increased investment (E22) | increased opportunity costs of rebellion (D74) |
| improved economic conditions (N12) | reduced support for insurgents (H56) |
| increased investment (E22) | insurgents extorting resources through violence (Q34) |