Household investment under violence - the Colombian case

Rebekka E. Grun

No 4713, Policy Research Working Paper Series from The World Bank

Abstract: Households in rural Colombia are confronted with a variety of violent threats: attacks and displacement threats by guerrillas and paramilitaries, gang violence among drug traffickers, and high common delinquency. In this context, households have to adjust their day-to-day decisions, including saving and portfolio choices, in order to be less vulnerable. The authors test the hypothesis that households, when confronted with exogenous violence, reduce their investment and, moreover, shift it from fixed to mobile assets, which would be safer in the case of displacement, and choose the opposite strategy under higher common delinquency associated with property crimes. Empirical evidence from a rich Colombian micro-data set strongly supports the hypothesis. The results shed new light on the economic impact of violence. The immediate reduction in capital stock might be much less severe than more permanent damage via the savings function. This has implications for the appropriate political answer to chronic violence in Colombia as well as in other areas of chronic conflict.

Keywords: Economic Theory&Research; Investment and Investment Climate; Access to Finance; Bankruptcy and Resolution of Financial Distress; Public Sector Corruption&Anticorruption Measures (search for similar items in EconPapers)
Date: 2008-09-01
New Economics Papers: this item is included in nep-dev and nep-lam
References: View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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