International Economics Workshops
The Legacy of Conflict: Aggregate Evidence from Sierra Leone
Tillman Hoenig (LSE)
Wednesday 03 February 2021 12:30 - 13:30
About this event
This paper studies the general equilibrium impact of civil war in Sierra Leone. I first use an instrumental variable (IV) strategy and geographic conflict variation to estimate reduced-form effects. I show that civil war leads to affected areas having a higher share of workers in agriculture and lower worker income as a result. In order to explicitly take into account general equilibrium effects such as selective migration in response to the war, I then develop an economic geography model. The model sheds light on different mechanisms through which conflict affects aggregate income: Changes in education and firm productivity have both direct effects on income and indirect effects by changing the allocation of labour across sectors and locations. Changes in amenities also affect the spatial allocation of labour. Next, while education outcomes are observed, I leverage the structure of the model to identify unobserved firm productivities as well as amenities. I find that conflict strongly affects education and non-agricultural firm productivity while amenities and agricultural firm productivity are unaffected in the long run. Finally, I use the model to perform counterfactual simulations. In the absence of civil war, aggregate income in Sierra Leone would be 14.8% higher today. Human capital losses can only account for about 1/3 of the effect.