Diamonds are Forever, Wars are Not: Is Conflict Bad for Private Firms?

Eliana La Ferrara and Massimo Guidolin

No 4668, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This Paper studies the relationship between civil war and private investment in a poor, resource abundant country using microeconomic data for Angola. We focus on diamond mining firms and conduct an event study on the sudden end of the conflict, marked by the death of the rebel movement leader in 2002. We find that the stock market perceived this event as ?bad news? rather than ?good news? for companies holding concessions in Angola, as their abnormal returns declined by 4 percentage points. The event had no effect on a control portfolio of otherwise similar diamond mining companies. This finding is corroborated by other events and by the adoption of alternative methodologies. We also use nonparametric techniques with daily data on the intensity of conflict, and find that moderate levels of violence increased the abnormal returns of the ?Angolan? portfolio. We interpret our results in the light of the widespread rent seeking in the Angolan mineral industry.

Keywords: Civil war; Event studies; Rent-seeking; Angola (search for similar items in EconPapers)
JEL-codes: G14 O12 O16 (search for similar items in EconPapers)
Date: 2004-10
New Economics Papers: this item is included in nep-afr and nep-fin
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Citations: View citations in EconPapers (35)

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Related works:
Journal Article: Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms? (2007)
Working Paper: Diamonds are forever, wars are not. Is conflict bad for private firms? (2006)
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