Firm Exit and Armed Conflict in Colombia

Abstract

This article uses two unique panel data sets to study the causal effect that armed conflict has over firm exit in Colombia. Using a fixed-effect estimation methodology at the plant level and controlling for the possible endogeneity of armed conflict through the use of instrumental variables, we find that a one-standard deviation ( SD) increase in the number of guerrilla and paramilitary attacks in a municipality increases the probability of plant exit in 5.5 percentage points or .28 SD. This effect is stronger for younger manufacturing plants, with a smaller number of workers and low levels of capital.