Under Pressure: Global Evidence on Conflict and Firms

Emanuele Brancati, Michele Di Maio, Roberta V. Gatti and Asif Islam

No 10898, Policy Research Working Paper Series from The World Bank

Abstract: This paper provides the first global analysis of the impact of conflict exposure on firm performance, combining geolocalized longitudinal firm-level data with information on political violence events across 89 countries between 2006 and 2019. The results show that higher conflict exposure leads to declines in both sales and total costs, resulting in no significant effect on profits for surviving firms. The reduction in sales is driven by lower output, which reflects conflict-induced shortages of raw materials and production inputs, as well as increased informal competition. Firms respond to declining sales by adjusting labor costs, substituting skilled workers with unskilled ones. The negative effects of conflict on firms are more pronounced in countries with high trade openness, low economic complexity, weak bureaucratic quality, involvement in illegal drug production, or an initial state of peace. In these contexts, greater conflict exposure leads to reductions in both sales and profits.

Date: 2024-09-05
New Economics Papers: this item is included in nep-bec and nep-int
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