Monday, 24 February 2014

What next in research on the economics of violent conflict?

The ninth annual workshop of the Households in Conflict Network (HiCN) took place at the University of California’s Berkeley campus on 20 to 22 November 2013. HiCN was set up in 2005 in order to bring together researchers interested in analysing the relationship between violent conflict and household welfare, a research field that has gained significance recently. What predictions can we make about future developments in the research agenda of this fast-moving field?

Until about a decade ago we had only limited evidence of the effects of violent conflict on civilian populations in terms of who was affected by violence, as well as why and how. Thanks to improved new data and the creative use of existing datasets, we now have a substantial body of evidence on the effects of violent conflict on a variety of social, economic and political outcomes—including education, child nutrition, household consumption, labour market participation, political preferences and social engagement—at the household and individual levels. This research now covers most conflict-affected countries.

While there is still a place for research on the individual and household consequences of violent conflict, research in recent years has subtly moved into a more in-depth understanding of the patterns and structures of different conflicts and their implications for local populations. Two areas have been particularly important.

The first is the better understanding of the long-term legacies of violent conflict. While initial studies focused on the short-term impacts of violent conflicts, over the past few years a number of studies started to analyse the long-term effects of conflict, particularly the long-term effects of childhood exposure to violence. Results show that children exposed to violence at young ages are less likely to grow to their full potential, less likely to accumulate human capital and more likely to command lower earnings. Some of these effects result from in-utero exposure to violence, and resulting high levels of fear and stress among pregnant women.

The second area of research is about understanding the relationship between violent conflicts, local institutions and micro-level outcomes. New work has focused on social organisational structures and norms of behaviour such as individual participation in local organisations, the relationship between armed groups and civilian populations, voting outcomes, political identities, altruism and trust and social cooperation. Results from this body of research are so far mixed but have opened the path for some of the most exciting research work today in development economics.

These areas of research are important because they provide glimpses into important mechanisms that shape the long-term legacies of violent conflicts on societies, markets and political systems.

So, what next? Research on the economics of violent conflict is still in its infancy with much to offer in terms of understanding how development processes occur—and how they can be promoted—in some of the most deprived and vulnerable populations in the world. However, most existing research has been driven by new empirical advances spurred by more and better data.

Theory is slowly making its way into this research, as seen in many of the papers presented at the recent HiCN workshop, but much can still be learned in terms of applied behavioural analysis, household economy theory, intra-household bargaining processes, industrial organisation, information theory, labour supply and demand, price theory and other areas of theoretical microeconomics. Further theoretical work will allow us to better identify causal mechanisms shaping the effects of violent conflict on long-term development processes.

Another area that remains unexplored is the extent to which micro-level outcomes can explain processes of conflict at more aggregate levels of analysis. These micro–macro links have remained largely under-explored, but are the measure through which we will be able to assess whether this new body of research on violent conflict is able to provide the micro-level foundations needed to understand the causes, endurance and consequences of violence in the wider political and economic arenas.

Finally, research on the economics of conflict has mostly focused on civil wars. This is partly due to data availability, but is also a reflection of the prevalence of civil wars in modern conflicts. However, low-intensity forms of violence such as riots, ethnic violence and violent protests have been on the rise around the world. Examples include many of the countries where the events of the Arab Spring occurred, most of Latin America and Asia and several African countries that have recently emerged from long civil wars.

While these forms of violence may not have the same impact magnitude of civil wars, they can severely affect how people live and survive in politically unstable contexts. This is a very promising area for future research because violence that occurs outside of a war context is often an important element of the complex forms of social and political change that can be observed in many parts of the world today.

By Patricia Justino

This blog is a part of a collaborative series in partnership with Economists for Peace & Security and the Stockholm International Peace Research Institute. Originally posted on United States Institute of Peace website on 18 February 2014

Tuesday, 18 February 2014

Fighting poverty by closing the gap

Suddenly, it seems everyone is talking about inequality. A recent report by Oxfam shows the importance of fighting inequality to combat poverty. Working for the Few states that extreme inequalities threaten the possibility of a sustainable and inclusive economic and political development and perpetuates poverty. Today, almost half of the wealth in the world is owned by only 1% of the population, while the bottom half of the population owns as much as the richest 85 people.

The idea of inequality has also made its way into the power centres of the world. In his State of the Union speech recently, President Obama promised a set of 'concrete, practical proposals' to tackle the economic inequality in the country. The participants on World Economic Forum in Davos in January seemed similarly worried, expressing in their 14 AnnualAssessment of Risk their concern that increasing inequalities will lead to social and political unrest. Also, academics like Lakner and Milanovich, suggests that over the period 1988 - 2008 inequality between countries has decreased whereas the inequality within countries exhibits an increasing trend. Peter Edward and Andy Sumner and Paolo Liberati arrive to the same conclusion. Thomas Piketty adds more controversy to the debate by claiming in a new book that the increase in inequality is an inevitable outcome of free market capitalism, and could thereby threaten democratic societies.

Gini or Palma?

While inequality has made its way to the headlines, measuring it remains problematic. Gabriel Palma, the Chilean economist on whose findings Oxfam build their report, claims that ' (…) countries with high inequality are simply those in which the rich are more successful at subsidizing their insatiable appetite with the income of the bottom 40 per cent’. He considers that the question of inequality is largely about the battle between the rich and poor for the remaining part of the national income, and with which side the middle classes ally. Consequently, any action that aims to reduce inequality is inherently political; therefore there is a need for a measure that correlates wealth and politics. We need to, as Alex Cobham and Andy Sumner propose, put the Gini back in the bottle and complement the Gini index with a more politically relevant measure, the Palma ratio. The Palma ratio, named by Andy Summers of King's College, London, is defined as the ratio of the top 10% of population’s share of Gross National Income, divided by the poorest 40% of the population’s share of GNI. A 'Palma' of 7 is interpreted as the richest 10 per cent earn seven times the income of the poorest 40 per cent of a that particular country.

Could the 'Palma' inequality measure lead to a shift towards a political approach to inequality? We hope so. Economic growth is not enough; we need strong political action to address the unequal distribution between rich and poor.

The post-MDG framework a way forward

A global survey of 375 policy-makers from 15 countries conducted by UNDP shows that policy-makers consider the reduction of inequality as a major policy priority. Therefore, at national levels debates are taking place about the nature of tax systems and social protection programs. However, at the global level, actions to change the actual global inequality of opportunity and wealth accumulation are not on the political agenda. Many, including Piketty, acknowledge that the current state of global governance does not create space to reach consensus on a global redistribution mechanism.

While we do not have a global redistribution system, but we do have the global institutions such as the UN and the Millennium Development Goals (MDGs). As thoughts move to a post-2015 MDG framework, the world will have to agree on how these could be improved. According to ODI, '… the current set of MDG's, which focus on average progress measured at the country and global level, have masked the inequalities that lie behind these averages (…) another method of measuring progress is needed, which will provide more information about how that progress is distributed, and also provide incentives to focus on those groups which are being left behind'. Including inequality in the post-MDG's (the global development goals that will replace the MDGs after 2015) could be a step in the right direction. The post-MDG framework could, together with stronger accountability mechanisms, create a common ground for governments and the civil society to work together in the effort to tackle global distributional issues. Failing to do this, as mentioned in a background research paper for the Post-MDG’s UN high-level panel, could mean that the people still remaining in poverty will continue to be left behind.

By Woody Wong Espejo and Ulrica Hansson, Masters students of IDS