Firms amid conflict: Performance, production inputs, and market competition

Davide Del Prete, Michele Di Maio and Aminur Rahman

Journal of Development Economics, 2023, vol. 164, issue C

Abstract: We study the effect of conflict on firms’ economic performance and the underlying mechanisms. We develop a simple theoretical framework in which conflict reduces a firm’s output, induces input substitution, and increases firms’ exit. In our empirical analysis, we combine an original dataset of Libyan firms and geolocalized data on conflict events during the Second Libyan Civil War to show that, in line with the predictions of the model, conflict reduces a firm’s revenues and increases exit, relatively more for firms intensive in foreign inputs. We also document that, conditional on survival, the negative effect of conflict on revenues is non-linear, with its marginal effect decreasing as conflict intensity increases. Two mechanisms drive this result: the heterogeneous conflict-induced reduction in the availability of production inputs and the weaker market competition due to the conflict-induced decrease in the number of a firm’s competitors.

Keywords: Firms; Conflict; Foreign workers; Imported inputs; Market competition; Libya (search for similar items in EconPapers)
JEL-codes: C23 D22 D74 L20 O12 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:164:y:2023:i:c:s0304387823000986

DOI: 10.1016/j.jdeveco.2023.103143

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