Cost of Conflict and FoodSecurity in the ESCWA Region Vito IntiniSection for Emerging and Conflict Related Issues 6 February 2012
• Violent conflicts strengthen the popular conviction that conflict is a development curse. But exactly how much does it cost?• Several studies have tried to provide an answer to this question, but no consensual answer has emerged. In particular, point estimates tend to vary considerably across different studies.• Moreover, the empirical assessment of the cost of conflict poses a number of relevant methodological challenges that are often overlooked in the existing literature.• Finally, very little is known on the relationship between conflict, on the one hand, and FS and development, on the other, in the ESCWA region.
Outline• Concepts and Stylized Facts• Methodological Framework• Transmission Channels• Measurement of Impact of Conflict• Conflict-FS Nexus and Challenges• Recommendations
Concepts & Stylized Facts• The most cited study in this area is Collier (1999). He finds that civil war reduces the growth rate of per-capita GDP by 2.2% a year (10-year war would reduce pc GDP by ~25%).• Collier also shows that after long civil wars the economy recovers rapidly, whereas after short wars (more intense) it continues to decline for at least five years.• Rodrik (1999) argues that outbreaks of social conflict are a primary reason why national economic growth lacks persistence.• Cerra and Saxena (2008) estimate that output declines 6% in the immediate aftermath of a civil war. However, output rebounds quickly, recovering half of the fall within a few years.• Glick and Taylor (2010) find large and persistent impact of interstate war on trade, national income, and global economic welfare. The negative effect on trade is strong.
Concepts & Stylized Facts• The conventional wisdom that interstate war disrupts economic activity and hence reduces growth does not go unchallenged.• An increase in military expenditure might boost aggregate demand and hence increase income through a multiplier effect. However, this would likely be a short-term effect, while in the long-term the growth potential of the economy should decrease because of crowding-out effect on private investment.• A more general argument is that the occurrence of a war would not alter the long-term trend of per-capita income, but only cause a transitionary deviation from the steady state.
Methodology Issues• Most of the existing literature estimates reduced form models: models where per-capita income (or growth) is regressed on a measure of conflict duration (or occurrence) and a set of controls. However, these controls are often variables that are themselves affected by war. This in turn causes possible multicollinearity between conflict and the controls and biases the estimates of the conflict effect.• Some authors recognise this problem and exclude controls that are most likely to be affected by conflict (for instance Collier, 1999). However, if the excluded controls are significant determinants of development (as measured by income or any other variable), then an omitted variables problem arises and estimates of the effect of conflict are again likely to be biased (i.e. underestimated and/or not significant).
Methodological Framework• In our study, a structural model of conflict and development is estimated for a large sample of countries over a period of >40 years (divided in sub-periods of 5 years each). In this way, conflict is allowed to affect development both directly and indirectly via its effect on the controls (institutions, policy, investment).• The structural model consists of a set of equations that capture the effect of conflict on per-capita income and various other (MDG) variables for ESCWA and other war-torn economies while separating interstate from intrastate conflicts.• Equations are estimated by taking into account dynamic effects as well as endogeneity between conflict and development.• Source of information on conflicts is the Correlates of War project (COW): i) conflict duration, ii) number of deaths (more challenging).
Preliminary General Findings Civil Conflict Interstate Conflict Av. Duration Av. Deaths Av. Duration Av. Deaths World 0.27 106 0.07 271 ESCWA 0.39 105 0.13 903 • Most of the negative association between conflict time and growth/income level is driven by civil conflicts. Interstate conflict duration appears to be uncorrelated with growth and/or per-capita income level. • One additional year of civil conflict is directly associated with a decline in per-capita GDP growth of ~0.6% a year. • However, we have not yet determined direction of causality. 11 12 11 12 10 10 8 Rate of growth of per-capita GDP 8 Rate of growth of per-capita GDP Per-capita GDP (in log) 9 9Per-capita GDP (log) 4 4 8 8 0 0 7 7 -4 -4 6 6 -8 -8 5 5 4 -12 4 -12 0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5 Years of intrastate war (in a quinquennium) Years of intrastate war (in a quinquennium) Years of interstate war (in a quinquennium) Years of interstate war (in a quinquennium)
Effect of Conflict on Institutions Variable Estimate Lagged Institution Index Quality 0.79 (0.01)*** Lagged GDP p.c. 0.43 (0.55) Civil War -0.24 (0.56) Inter-state War -2.57 (0.89)** Civil War (ESCWA) -0.80 (0.12)*** Inter-state War (ESCWA) 0.50 (1.14) ESCWA -0.30 (0.34) Fuels 0.00 (0.00) Legor 0.19 (0.31) Ethnic 0.29 (0.50) Malaria -0.08 (0.02)*** Constant 3.46 (0.55)*** Observations 503Points on a scale 1-10. Robust standard errors in parenthesis; ***estimate is significant at 99% , **estimate issignificant at 95%, *estimate is significant at 90%; Endogenous variables: Civil War, Inter-state War, CivilWar (ESCWA), Interstate War (ESCWA), Fuels.
Effect of Conflict on Trade Variable Estimate Lagged Trade 0.89 (0.05)*** Civil War -1.51 (0.70)** Inter-state War 0.96 (0.83) Civil War (ESCWA) 1.43 (2.93) Inter-state War (ESCWA) 14.19 (28.00) ESCWA 4.30 (5.00) GDP 6.22 (2.52)** GDP p.c. -6.88 (3.52)* Landlocked -23.84 (16.62)** Country Surface -5.12 (1.64)*** Constant 54.78 (22.79)** Observations 696Figures in %. Robust standard errors in parenthesis; ***estimate is significant at 99% , **estimate issignificant at (95%), *estimate is significant at 90%; Endogenous variables: Inter-state War, Inter-state War(ESCWA), GDP, GDP p.c.
Effect of Conflict on Investment Variable Estimate Lagged Investment 0.53 (0.07)*** Civil War -7.25 (3.55)** Inter-state War 0.61 (0.41) Civil War (ESCWA) -2.55 (0.69)*** Inter-state War (ESCWA) -1.13 (7.99) ESCWA -0.61 (1.04) Volatility -0.00 (0.00)*** Financial Openness 0.03 (0.24) M2 -0.08 (0.02)*** Institutions 0.54 (0.60) Trade 0.42 (0.15)*** Latitude 4.24 (3.33) Landlocked -1.24 (1.69) Malaria -0.34 (0.12)*** Constant 7.91 (2.98)*** Observations 551Figures in %. Endogenous variables: war_intl, war_intl_escwa, war_civil, war_civil_escwa, M2,Institutions, Trade, Fin_open, Volatility.
Effect of Conflict on MDG Dimensions) HDI Social Immuniz. Life Average Access Child Inequal. Expect. School. to Sanit. Mortal.Civil War -0.00 -0.09*** -1.53* 0.30 -0.01 -0.41 1.32 -0.32Inter-state -0.92*** -0.02 -4.12 -0.55*** -0.21** 0.32*** 3.33** -4.11WarCivil War -0.13 0.13 1.94 -1.38*** -0.03 -0.88 2.43** 15.23***(ESCWA)Inter-state -1.63 -2.73*** -26.47 -1.78 -0.26 -0.03*** 0.02 -0.06War(ESCWA)GDP p.c. 10.63*** 1.96*** 30.19*** 8.13*** 2.32*** -0.81 -0.01 2.36*Human = av. years of schooling * life expectancy; Immunization = % children aged 12-23 months that have been immunized against measles.; Social: weighted av. of (i) av.years of education in the population, (ii) life expectancy, and (iii) rate of childrenimmunization. Access to water, maternal mortality, child malnutrition are not significantafter controlling for PC GDP.
Estimated Impact of Conflict on Development Civil Conflict (%) Inter-state Confl (%) All ESCWA All ESCWA Countries Countries GDP p.c. (without Investment) -14.70 -17.40 -8.03 -8.03 GDP p.c. (with Investment) -15.15 -18.50 -7.06 -7.06 GDP p.c. (direct war effect) -1.70a -1.70a -1.90b -1.90b HDI -7.80 -9.20 -8.85 -8.85 Social Indicators -24.67 -27.44 -10.36 -19.32 Immunisation Rate -8.24 -9.35 -3.31 -3.31 Life Expectancy -1.98 -2.93 -1.96 -1.96 Average Years of Schooling -4.56 -4.56 -6.34 -6.34 Access to Sanitation Facilities -6.86 -6.86 -9.01 -12.12 Child Mortality 12.11 14.02 15.02 15.02 Income Inequality -0.80 37.5 -0.40 -0.40Notes: Estimated effect of one additional year of war. For human development, immunization rate, lifeexpectancy, average years of schooling, access to sanitation facilities, child mortality, and income inequality,the percentage is computed on the sample mean value of the indicator. For social development, thepercentage is computed on the sample standard deviation of the indicator.
Conflict – FS Nexus LOG10(foodimpshr) vs FSI ceryld vs FSI 2.0 10000.0 LOG10(foodimpshr) 1.2 6666.7 YEMceryld 0.3 SDN 3333.3 PAL IRQ YEM SDN -0.5 0.0 0.0 40.0 80.0 120.0 0.0 40.0 80.0 120.0 FSI FSI PubHealth vs FSI LOG10(kcal) vs FSI 12.0 3.6LOG10(kcal) PubHealth 8.0 3.4 SDN PAL YEM 3.3 4.0 IRQ YEM SDN 3.1 0.0 0.0 40.0 80.0 120.0 0.0 40.0 80.0 120.0 FSI FSI
Post-conflict Challenges (1)• Service provision in post-conflict is particularly challenging• Populations needs are most acute and particularly concentrated in this phase• Public institutions and governance are particularly weak and fragmented (center-local divides and horizontal cleavages)• Elites capture and patronage risk is higher• Different political interests, approaches, and parallel diplomatic, military, and development-sponsored activities, reflected in fragmented institutional mechanisms• Limited capacity of military aid and its lack of coordination with ODA• The short-term aid governance approach often prevails over the long-term one (PIUs vis-à-vis governmental staff, shopping lists, subcontracting of essential services, fragmented short-term small scale projects)• Risk of emergency/aid dependence
Post-conflict Challenges (2)Crowding-in or out Effect of Military Expenditures vs Social Expenditures? (% of GDP) Military Public education Public health expenditure expenditure expenditure Country average average average 2000- 2005- 2001- 2005- 2000- 2005- Conflict-affected 2004 2009 2004 2008 2004 2009 countries tend to Bahrain 4.40 3.36 - 3.10 2.79 2.66 Egypt 3.24 2.50 4.80 4.06 2.32 2.12 have over-inflated Iraq 2.38 4.54 - - 1.01 2.58 wage bills that can Jordan 5.74 5.22 - - 4.86 5.30 reach up to 1/3 of Kuwait 6.92 3.79 6.30 4.24 2.49 1.92 government budget Lebanon 4.91 4.29 2.64 2.46 3.44 3.93 (OPT, Iraq, Yemen) Oman 11.89 9.86 4.05 3.72 2.56 1.99 Qatar 3.88 2.25 2.14 - 2.37 2.07 Saudi Arabia 9.80 8.93 7.27 5.97 2.99 2.78 Sudan 3.77 4.24 - - 1.07 1.88 Syria 5.49 4.22 - 5.09 2.21 1.45 UAE 8.40 5.73 1.84 1.09 2.44 1.81 Yemen 6.16 4.62 9.63 5.15 2.42 1.62 ESCWA average 5.92> 4.89> 4.83> 3.88~ 2.71< 2.67< Arab Region 6.40 5.28 5.07 3.95 2.57 2.44 EAP 1.49 1.58 3.98 3.79 4.69 4.28 LAC 1.35 1.36 4.18 3.96 3.19 3.51 World average 2.39 2.48 4.33 4.45 5.64 5.76
FS, Vulnerability, and Conflict- Vulnerability to shocks makes poor households risk averse in their asset-allocation strategy and this aversion is even more pronounced in conflict-affected areas often characterized by a cascading series of a combination of conflict-related, natural shocks, and international price shocks with the result of ever-decreasing food-security levels and passing up more risky but more profitable businesses.- Complementing social protection with government supported forms of insurance (but eventually market-based) can help the poor to improve their risk copying strategies Natural Conflict-driven Commodity Shock Shock price Shock
Review of Food Aids• Food Aid highly volatile in the last two decades partly due to donors’ policies not always based on needs assessment• Food Aid not a tool to address long-term FS• Need for closer coordination among relief agencies and for medium- term budgeting• Food Aid works when local economic policy is addressed, it is temporary and limited to contexts lacking institutions and markets• Need to coordinate short-term relief ops with medium-term considerations (WFP P4P)
Volatility of Humanitarian and Food Aid1600 3,000,0001400 2,500,0001200 Afghanistan Angola Yemen1000 2,000,000 DRC Syria Ethiopia Sudan 800 Mt Indonesia 1,500,000 OPT Iraq Lebanon 600 OPT Jordan 1,000,000 Somalia Iraq 400 Sudan Egypt 500,000 200 0 0 Period 1990-2008 1998 2000 2002 2004 2006 2008 2010
But aid is also volatile at the regional level Deviation of Gulf state ODA and crude oil price from 1970–2007 average 20
Governance deficit – conflict trap (I) The risk of renewed conflict in countries with good governance drops rapidly after conflict. In countries characterized by poor governance, this process takes much longer. Hence, improving governance is an important part in reducing conflict, and good governance will in turn decrease the likelihood of conflict. 21
Governance deficit – conflict trap (II) Voice and Accountability Government Effectivness Rule of Law 0 0 0-0.2 -0.2 -0.2-0.4 -0.4 -0.4-0.6 -0.6-0.8 -0.6 -0.8 -1 -0.8-1.2 -1 -1-1.4 -1.2-1.6 -1.2 -1.4 Regulatory Quality Control of Corruption Political Stability 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 0 0 0-0.2 -0.5 -0.2-0.4 -1 -0.4-0.6 -0.6-0.8 -1.5 -0.8 -1 -2 -1-1.2 -1.2 -2.5
Importance of land rights in conflict (I)Insecure or weakly enforced property rights:• Increase risk of expropriation, which diminishes incentives to invest and to produce• decrease productivity by necessitating the need to defend property in insecure environments• do not allow productive assets to be transferred to those who can use them for their livelihood (subsistence farmers) or most productively (commercial farmers)• do not allow a crucial asset supporting other transactions such as obtaining financing• can cause both grievance and greed• exacerbate over-urbanization and socio-economic disparities in the aftermath of a conflict• are an important driver of food security and therefore of social stability given that food price shocks hit the landless hardest and increase the incidence of riots 23
Importance of land rights in conflict (II) • Friction or even open conflict between modern state-led (+ colonial) and customary or tribal property rights systems • Property disputes constitute the single largest cause of backlog cases in the judicial systems of most post- conflict countries including LDCs (great entry point to reform the judiciary) • Post-conflict government capacity is weak in terms of systematic and consistent law enforcement and informal governance systems tend to be relatively stronger • However, recent experiences have shown that remedies to this inherent contradiction are possible (DRC, Mali, Zimbabwe) 24
Recommendations (I)• The breadth and depth of available data require immediate and significant improvements.• Conflict - Poverty (and informality) – Food Insecurity compound into inter-generational transmission of poverty, inequality, and conflict relapse• One year of a civil conflict in the region is enough to cancel development progress made by an average ESCWA country in 5-10 years• The potential presence of endogeneity suggests an existence of a ‘feedback-loop’ whereby the process of conflict and de-development feed on each other. In such instances, a ‘circuit-breaker’ is required to break this symbiotic vicious cycle.
Recommendations (II)• Governmental action can be directed at reactivating the channels through which public goods are delivered.• Closer regional integration and better business environment can increase the peace dividend on these countries.• Expansion of family (and nutrition support) programs especially in rural areas to improve maternal health, provision of education with specific focus on girls education, and reduce fertility rates.- Support community-based development funds for infrastructure and services → labor generation, social capital and peace dividends- More use of JAM, joint CAS, PRSPs, SWAPs- Regional action aimed at tapping Sudan’s agricultural potential in a transparent manner- Review land policies in conflict-affected environments- Learn lessons from food aid and relief modalities and how to link them to livelihood programs (WFP’s P4P)- Reform CERF and establish a food aid emergency reserve (ASEAN) or multi-annual regional fund managed by WFP/OCHA
Recommendations (III)• Strengthen governments’ efforts to preserve water resources and increase their rational utilization.• Agriculture (and the rural poor) in these countries is trapped in low value-added activities and mainly characterized by low productivity farming. It is therefore vital to increase efficiency in rain-fed agriculture, enhance ag R&D, and promote market linkages.• Donors need to move towards multi-year budgeting for their transfers to the relief agencies working in a conflict-affected country so that they can improve their planning and increase efficiency gains in their operations. Due to absorptive capacity constraints aid disbursements should gradually rise during first 3-5 years and then slowly revert back.
Recommendations (IV)• With respect to the issues specifically raised in this report, future research should provide an even more comprehensive account of cross-regional differences in the development costs of war.• More work will be needed in the future in order to provide theoretical foundations to our findings: why is the negative effect of conflict sometimes associated with interstate conflict while other times is associated with civil conflict? Why is inequality disproportionally affected by conflict in this region? And what can we do to reduce the overall effect?
Enhance Regional Cooperation through FSConflict and FS are two regional problems that require a strong regional approach• How can cooperation be promoted? – Create Awareness: Previous Pan-Arab cooperation efforts were driven by ideology, not necessity. Cooperation in light of common threats to the conflict-food security nexus is a necessity – Build Political Commitment: EU and ASEAN were launched to promote peace and stability. The obstacles to successful regional integration were not necessarily easier than in the Arab world today – Provide Incentives: Cooperation must pay a peace dividend, financed by transfers and the creation of new economic opportunities. It is a positive sum game. – Promote specific actions: reinvigorated supranational actions need to be undertaken with specific responsibilities in the area of social assistance programs, rural development, gender and family planning, and the advancement of an Arab common market. – Manage External Support: The international community can help increase the opportunity cost from engaging in conflict through greater regional economic cooperation, including the dismantling of protectionism (by trade partners) and more efficient development aid.
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