The Temporal Links between Conflict and Economic Activity

Abstract

Data from 152 countries from 1950 to 1992 are used to estimate the joint determination of external conflict, internal conflict, and the business cycle. Results show that the occurrence of a recession alone will significantly increase the probability of internal conflict, and when combined with the occurrence of an external conflict, recessions will further increase the probability of internal conflict. These results are obtained from estimates of a Markov probability model in which transitions between states of peace and conflict influence each other and the state of the economy. Strong evidence emerges that the internal conflict, external conflict, and the state of the economy are not independent of one another. The results suggest that recessions can provide the spark for increased probabilities of internal and external conflict, which in turn raise the probability of recessions. Such dynamics are suggestive of a poverty-conflict trap-like environment.