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Economic Consequences of War: Evidence from Sri Lanka

Kumudini R. Ganegodage () and Alicia Rambaldi ()
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Kumudini R. Ganegodage: School of Economics, The University of Queensland

No 453, Discussion Papers Series from University of Queensland, School of Economics

Abstract: We propose a theoretical and econometric framework to evaluate the impact of war on economic growth of a developing country with an open economy. The theoretical framework encompasses both the neoclassical and endogenous growth models. The econometric model is derived from the theoretical framework and an Autoregressive Distributed Lag framework is used for the estimation. We test this framework using Sri Lankan data. The war had significant and negative effects both in the short and long-run (annual average of 9% of GDP). High returns from investment in physical capital did not translate in sizable positive externalities. No significant effects of openness on growth in the long-run are found; however, effects are significant in the short- run. Inconsistent politically driven policies towards openness are the likely reason. As the ethnic conflict has finally come to an end, a policy framework with appropriate institutional reforms is needed for rapid growth and development.

Date: 2012
New Economics Papers: this item is included in nep-cwa and nep-fdg
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Journal Article: Economic consequences of war: Evidence from Sri Lanka (2014) Downloads
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