Highly violent conflicts can dramatically stunt economic growth in fragile countries

Syria has lost £16-30 billion in potential growth due to civil war, researchers estimate

Highly violent conflicts dramatically reduce a country’s capacity to grow and are a key reason for much lower average growth rates over time in fragile countries, according to a new paper by the International Growth Centre (IGC), based at the London School of Economics and Political Science (LSE). During the highest intensity conflicts, researchers find GDP per capita growth falls by 5-10 percentage points every year. The study suggests that a war as intense as Syria’s has by now led to a loss of £16–30 billion in potential GDP.

“The estimates suggest a large and permanent loss in Syria’s capacity to produce,” said Hannes Mueller, a post-doctoral researcher at the Institute for Economic Analysis and one of the authors of the paper, The Cost of Violence. “Each year the war continues, the capacity to produce is reduced further: the effect is cumulative, and a huge part of the loss is coming from the population’s suffering.”

The impact of a conflict on an economy also depends on how long it lasts. During four years of highly intense civil war, a country’s GDP per capita will decline by a total of 18%  — about twice as much as the collapse suffered by the Greek and Irish economies during the global recession of 2007–2011.

Research also shows wars permanently damage the health and education of the people affected – extensive and persistent damage that affects an economy’s capacity to recover, for an entire generation in the case of Afghanistan and Syria. Humanitarian aid has a particularly important role to play: targeting aid to victims of war during conflict and funding programmes to get children and adolescents back in school could be key to overcoming war’s economic damage.

“Humanitarian aid is an investment in the future,” said Mueller.

Researchers argue that in addition to the dire human costs of war, understanding the economic costs of conflict could help governments and international aid organisations better support recovery and growth after conflict and prevent future outbreaks of violence.

The paper provides a few other key policy recommendations:

  • Governments can foster economic recovery and encourage investment by implementing policies that ensure that violence does not recur after a conflict ends. Corporations and local businesses react strongly to political instability, and new research finds that when civil wars end, foreign investment increases by 50% on average.
  • Research organisations should fund studies to better understand the economic costs and impacts of conflict prevention, peace building, and conflict intervention approaches. Studies that focus on how fragile countries can escape the negative cycle of conflict and economic downturn would be particularly useful.

Posted 13 December 2016