Regular article Firms amid conflict: Performance, production inputs, and market competition ☆

Raw Text

Journal of Development Economics

Volume 164

Author links open overlay panel

Davide Del Prete a

Michele Di Maio b c

Aminur Rahman d

Show more

Add to Mendeley

Share

Cite

https://doi.org/10.1016/j.jdeveco.2023.103143

Get rights and content

Under a Creative Commons

license

Highlights

• We develop a simple theoretical framework to study the effect of conflict on firms.

• We combine data on Libyan firms and geolocalized data on conflict events.

• Conflict decreases a firm’s revenues, induces input substitution, and increases exit.

• Conditional on survival, the negative effect of conflict on revenues is non-linear.

• The reduction in the availability of production inputs and the weaker market competition drive this result.

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.

Previous article in issue

Next article in issue

JEL classification

C23

D22

D74

L20

O12

Keywords

Firms

Conflict

Foreign workers

Imported inputs

Market competition

Libya

Recommended articles

Data availability

Data will be made available on request.

Cited by (0)

We are greatful to Gerard Padro i Miquel and two anonymous referees for their insightful comments. We thank Francesco Amodio, Emanuele Brancati, Christian Di Pietro, Michele Imbruno, Asif Mohammed Islam, Marco Le Moglie, Vincenzo Lombardo, Alexey Makarin, Silvia Marchesi, Monica Morlacco, John Morrow, Hannes Mueller, Eric Mvukiyeh, Roberto Nistico, Carmelo Parello, Mounu Prem, Marco Sanfilippo, Vincenzo Scoppa, Tommaso Sonno, Ken Teshima, Vladimir Tyazhelnikov, Lorenzo Trimarchi, Vincenzo Verardi, Victoria Wenxin Xie, and Chahir Zaki for very helpful discussions. We also thank seminar/conference participants at LSE, Doha Institute for Graduate Studies, Brunel University, 10th Novafrica Conference on Economic Development, ABCDE World Bank Annual Conference 2022, Armed Conflicts and Private Economic Activity Workshop (Warwick), UNU-WIDER (Helsinki), CEPR Workshop ‘Firms’ Behavior in Hostile Environments’ (on-line), CLEAN Bocconi (on-line), 19th Nordic Conference in Development Economics (on-line), Lancaster (on-line), MWIEDC 2021 (on-line), 15th HiCN Workshop (Paris), 1st Workshop on Firms, Markets, and Development (FIMAD) (Ortigya), ETSG 2019 (Bern), Economics of Global Interactions Conference (Bari), University of Namur, and University of Calabria. This paper is part of the World Bank project Mapping the Private Sector in Libya . The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the World Bank, its Board of Executive Directors, or the governments they represent. All errors are our own.

© 2023 The Authors. Published by Elsevier B.V.

Single Line Text

Journal of Development Economics. Volume 164. Author links open overlay panel. Davide Del Prete a. Michele Di Maio b c. Aminur Rahman d. Show more. Add to Mendeley. Share. Cite. https://doi.org/10.1016/j.jdeveco.2023.103143. Get rights and content. Under a Creative Commons. license. Highlights. • We develop a simple theoretical framework to study the effect of conflict on firms. • We combine data on Libyan firms and geolocalized data on conflict events. • Conflict decreases a firm’s revenues, induces input substitution, and increases exit. • Conditional on survival, the negative effect of conflict on revenues is non-linear. • The reduction in the availability of production inputs and the weaker market competition drive this result. 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. Previous article in issue. Next article in issue. JEL classification. C23. D22. D74. L20. O12. Keywords. Firms. Conflict. Foreign workers. Imported inputs. Market competition. Libya. Recommended articles. Data availability. Data will be made available on request. Cited by (0) ☆. We are greatful to Gerard Padro i Miquel and two anonymous referees for their insightful comments. We thank Francesco Amodio, Emanuele Brancati, Christian Di Pietro, Michele Imbruno, Asif Mohammed Islam, Marco Le Moglie, Vincenzo Lombardo, Alexey Makarin, Silvia Marchesi, Monica Morlacco, John Morrow, Hannes Mueller, Eric Mvukiyeh, Roberto Nistico, Carmelo Parello, Mounu Prem, Marco Sanfilippo, Vincenzo Scoppa, Tommaso Sonno, Ken Teshima, Vladimir Tyazhelnikov, Lorenzo Trimarchi, Vincenzo Verardi, Victoria Wenxin Xie, and Chahir Zaki for very helpful discussions. We also thank seminar/conference participants at LSE, Doha Institute for Graduate Studies, Brunel University, 10th Novafrica Conference on Economic Development, ABCDE World Bank Annual Conference 2022, Armed Conflicts and Private Economic Activity Workshop (Warwick), UNU-WIDER (Helsinki), CEPR Workshop ‘Firms’ Behavior in Hostile Environments’ (on-line), CLEAN Bocconi (on-line), 19th Nordic Conference in Development Economics (on-line), Lancaster (on-line), MWIEDC 2021 (on-line), 15th HiCN Workshop (Paris), 1st Workshop on Firms, Markets, and Development (FIMAD) (Ortigya), ETSG 2019 (Bern), Economics of Global Interactions Conference (Bari), University of Namur, and University of Calabria. This paper is part of the World Bank project Mapping the Private Sector in Libya . The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the World Bank, its Board of Executive Directors, or the governments they represent. All errors are our own. © 2023 The Authors. Published by Elsevier B.V.