Predation, Economic Activity and Violence: Evidence from the Philippines

Eli Berman, Joseph Felter, Ethan Kapstein, Erin Troland

NBER Working Paper No. 18375
Issued in September 2012
NBER Program(s):   PE   POL

This paper explores the relationship between economic activity and political violence through the lenses provided by several different mechanisms. Investment as a predictor of future violence implies that low private sector investment today provides a robust indicator of high violence tomorrow. "Rent-capture" or predation asserts that economic programs and business investment will increase violence by increasing extortion by insurgents. "Hearts and minds" counterinsurgency has been asserted to link economic activity to political violence in three ways, through an opportunity cost mechanism by which improved economic conditions reduce the cost of rebel recruitment; through a "hope and gratitude" effect by which development assistance generates support for government, reducing cooperation with rebels; and thirdly, though an improved governance mechanism. We lay out these mechanisms in a framework with strategic interaction between rebels, communities, government and firms within an information-centric "hearts and minds" counterinsurgency model. We test the mechanisms in the context of the Philippines in the first decade of this century, using a new dataset that combines violent incidents with indicators of economic activity. The data support the predation thesis, while refuting the predictions of the predictive investment mechanism, the opportunity cost mechanism, and the gratitude effect.

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Document Object Identifier (DOI): 10.3386/w18375

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