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Some economic consequences of the transition from civil war to peace

Jean-Paul Azam, David Bevan (), Paul Collier, Stefan Dercon, Jan Willem Gunning () and Sanjay Pradhan

No 1392, Policy Research Working Paper Series from The World Bank

Abstract: Drawing on evidence from Africa - especially Ethiopia and Uganda - the authors of this volume draw conclusions about economic policy in the aftermath of civil war. A sample of conclusions follows. Civil wars differ from international wars. They are informal, often have no clear beginning and end, weaken rather than strengthen the authority of the state, and leave two unreconciled armies to be demobilized within one territory. Civil wars erode the institutions of civil society, leading to a decline in the stock of social capital, which takes some time to restore. Private investment and government revenue are slow to recover, and military expenditures are not easily reduced. As a result, there is little or no peace dividend in the short run. The period of transition to peace is a particularly suitable time for radical policy reform, despite the high degree of polarization typical in countries engaged in civil war. And speedy reform, far from increasing uncertainty, is likely to reduce it. After a civil war, private agents are fearful both of each other and of the government. This, perhaps even more than physical damage to infrastructure, hinders private-sector-led recovery, as irreversible investment is delayed despite being financeable. The transition to peace is primarily the transition from fear and the defensive responses that became ingrained in wartime. The peace dividend comes as a gradual recovery of confidence induces repatriation of financial and human capital. Such confidence can be boosted by the early sequencing of investment-sensitive policy reforms and by preserving low inflation through direct consumer price index targeting. Lack of confidence can be compensated for by temporary undervaluation of the exchange rate, or however, may prove more difficult to make credibly time-bound. Finally, aid can permit accelerated rehabilitation of the infrastructure (especially transport networks) needed to return to a market economy. Contrary to the studies hypothesis, the authors found that demobilization - at least in Uganda - did not lead to a significant upsurge in insecurity. In the short term, demobilization significantly reduced crime, unless the demobilized lacked access to land. If the demobilized returned to their home areas and were given some assistance, with identifiable exceptions they were able to find income-earning opportunities.

Keywords: Debt Markets; Emerging Markets; Economic Theory&Research; Investment and Investment Climate (search for similar items in EconPapers)
Date: 1995-12-01
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