Introduction

In recent years, there has been a substantial increase in rigorous research and evidence on the costs and consequences of armed conflict. This brief reviews the latest evidence and draws conclusions of relevance for policymakers.

Alongside its dire humanitarian costs, armed conflict poses a range of risks to a country’s economic growth and development. Measuring the
economic impacts of violence matters because it can inform resilience strategies and drive resources toward conflict prevention. Yet, until recently, there has been limited rigorous quantitative evidence produced on the nature of this relationship.

Accurately estimating the economic cost of violent conflict is hard: the very existence of a conflict make measurement of economic activity difficult, and conflict can interact with the economy through multiple, complex pathways. In addition to the immediate, direct effects of violence on the economy, there are a number of indirect effects that may last long after the violence has receded. Fragile states often struggle to maintain resilience to conflict and other shocks; conflict, economic instability, poverty, and fragility tend to feed each other in a negative cycle. Recurrence of violence is the largest threat to long-term growth and development in conflict affected countries.

This brief reviews some of the latest research measuring the causal effects of violent conflict on a range of economic outcomes. It outlines the different channels and mechanisms through which conflict can affect growth. The aim is to help guide policymakers on what can be done before, during, and after conflict to mitigate its effects.

Key Messages

1. Preventing violent conflict should be a key priority for development and growth policy.

Violent conflict disrupts economic activity through multiple channels – and its effects are large and persistent. Policymakers need to understand these different channels in order to better prioritise what can be done to minimise the impacts of violence on economic and human development.

2. The economic effects of civil war often last well beyond the conflict period and can spill over to other countries.

These effects include shocks to employment and investment, large outflows of refugees, and reductions in health and schooling levels. Alleviating the humanitarian crisis and preventing human capital losses is important for preventing long-term negative economic repercussions.

3. In the aftermath of conflict, restoring investor confidence and rebuilding trust should be high priorities.

One of the main ways conflict can cause economic damage is by influencing investors’ expectations about political risks and the potential for a future resurgence in violence. Inclusive political institutions can support economic regeneration by preventing the risk of inequality between groups fuelling further unrest.