Beyond the Overall Economic Downturn: Evidence on Sector-Specific Effects of Violent Conflict from Indonesia

40 Pages Posted: 27 Feb 2011

See all articles by Marc Vothknecht

Marc Vothknecht

German Institute for Economic Research (DIW Berlin)

Sudarno Sumarto

SMERU Research Institute

Date Written: February 2011

Abstract

This paper analyses the impact of violent conflict on economic growth using micro-level data from Indonesia. We compile a panel dataset at district level for the period 2002-2008, and disentangle the overall negative economic effect of violent conflict into its sectoral components. Our results reveal substantial differences across sectors, with the most detrimental impact evident in manufacturing industries and the service sectors. Further, the short-run impacts on growth appear to be only temporal, and some evidence for the 'phoenix effect' in the early post-conflict period is found. The construction sector, in particular, recovers soon once conflict ends, while manufacturing industries and the finance sector appear especially reliant on a lasting peace. A series of alternative specifications confirm the main findings of the analysis.

Keywords: Violent conflict, economic growth, Indonesia

JEL Classification: O11, F51

Suggested Citation

Vothknecht, Marc and Sumarto, Sudarno, Beyond the Overall Economic Downturn: Evidence on Sector-Specific Effects of Violent Conflict from Indonesia (February 2011). DIW Berlin Discussion Paper No. 1105, Available at SSRN: https://ssrn.com/abstract=1769549 or http://dx.doi.org/10.2139/ssrn.1769549

Marc Vothknecht (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Sudarno Sumarto

SMERU Research Institute ( email )

Jl. Tulung Agung No. 46
Jakarta, 10310
Indonesia

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