Does conflict disrupt growth? Evidence on sociopolitical variables in the empirical growth models

This study examines the average economic effects of sociopolitical events within and between nation-states in the framework of empirical macroeconomic growth. The Penn World Tables, World Bank data, and political events data from the Correlates of War project and the World Even/Interaction Survey are introduced into the growth framework. The study distinguishes between weighted versus non-weighted, and actor versus target measures of hostility and cooperation. The cross-sectional framework of long run growth is found to be neither robust to testing with revised and updated data, nor appropriate to the analysis of political events, as those display a high degree of variability. The model is subsequently re-specified in the framework of short run growth, as a panel based on five-and one-year time intervals. The impact of conflict in the short run is assigned a country-specific effect via the intercept shift by adding variables directly to the benchmark model. Conflict has a direct effect on growth through the disruption of market activities and overall economic uncertainty. Comparisons of the six- and thirty-period panel models show that short term effects of conflict are strongest. Such negative impact is mostly short-lived, as economies recover from sociopolitical turmoil. In the aggregate sample, negative growth effects of conflict intensify with its severity. The findings are further refined in the analysis of country groupings based on the regional, income, and polity criteria. We find substantial evidence that effects of hostile and cooperative interactions between and within nations vary by the type of event and by country type. Poor and slow-growing countries engage in civil wars, while rich and fast-growing countries engage in international wars. While poor and African countries experience the strongest negative growth effects of international wars, civil wars have the strongest negative effects in rich economies. Non-democracies are especially affected by civil wars, and democracies---by international wars. Cooperation increases growth in rich and democratic economies, and lower growths in middle- and low-income countries. Curiously, international conflict promotes growth in the OPEC. The findings are tested for sensitivity to changes in model specification, functional form, estimation method, and exclusion of outliers.