The Effect of Conflict to the Economy of Afghanistan - Essay Example

Research Paper Sketch: The Effect of Conflict to the Economy of Afghanistan This paper studies the effects of conflict on the economy of Afghanistan. The study will center on assessing the effects of conflicts by the using the micro-data in conducting econometric analysis. This study finds the families that had the experience of the constant conflicts as lagging behind. It is in terms of consumption levels a number of years after the conflict. Furthermore, the findings of this paper also provide proof that the recovery process is usually slow. (This section will contain brief information of what the research proposal will be) Table of Contents Abstract 2 Introduction 4 Broader Scholarly Discussion 6 Purpose of the Study 6 Literature Review 6 Conflict leads to low human development 6 Effect of Conflicts in the Middle East 6 Effects of Religious and Ethnic conflict are on the Rise 7 Conflict Effects on the structure of the economy 8 How Conflict Affect Growth 9 Causes of Conflicts 10 Ways through, which conflicts, is Preventable 10 Summary of the Literature Review 11 In Context of Afghanistan 11 Variable and Operationalization 12 Case Selection 13 Methodology for Data Collection and Analysis 14 Results 15 Robustness Checks 15 Conclusion 16 Reference 17 Introduction Conflict remains vital in most of the developing nations this has made it an essential fraction of the study of economic growth. Especially, the past decade has experienced a significant increase in the study of matters to do with conflict. The main observation conflict has on economic growth of the nation. Even though, conflict might result in poor economic performance, the inverse relationship is equally reliable. Therefore, this contradicts the findings. Furthermore, very little is recognized relating to the post-conflict recovery. Therefore, the aim of this paper is to conduct econometric evaluation for both. This study will be narrow down to Afghanistan’s conflict. Drawing my conclusion form an economic hypothetical point of view, is that there is no agreement about the effect of conflict on the general economic performance. The neo-classical theory forecasts that the economy period takes minimal time. The alternative models claim that the catch-up period takes a longer period because the recovery rate of the human is slower. It is attributed to the country being trapped within a lower positioned equilibrium. The current evidence supports each side of the argument by providing the support. A possible explanation of the two depends on the nature of the data in use. A use of data of data from various countries reveals that a number of factors that are necessary for determining the relationship will be unattended to. The rate of economic recuperation may be dependent on the kind of damage brought about by the conflict. However, it was dependant on two factors, whether the conflict was between countries that depend on their soldiers or within the country among factions of its community. The use of micro-level statistics acts as a more reliable means reason being the initially unobservable aspects become observable. For the purpose of further clarification, more information is in the literature review section, detailing the effect of conflict on the economy. Similar to other studies of this nature, this paper will narrow down to a single country, Afghanistan. Previous micro-empirical studies did focus on the consequences of conflict among nations. However, this paper will overlook the effects within a single country. In addition, this paper will also evaluate the fundamental post-conflict practice. In order to determine the effect of conflict on the economy, the study will look at the rural community. It will aim at establishing whether the level of conflict they underwent. Furthermore, this paper will explicitly examine the underlying post-conflict practice. The study will aim at investigating the consequence of economic performance. That will be through assessing the rural setting households that have had a greater experience of conflict, and have resorted to having low consumption rate consecutive years afterwards. It will be in relation to other households. The finding brings a conclusion that they do. The finding brings a conclusion that they do. The finding concludes that regions that experienced conflict were faced with inconsistency in the development. Definition of Terms This section will contain the definition of phrases and terms that are contained within the research paper. Their definition will be in the context of the study. Broader Scholarly Discussion Purpose of the Study The main purpose of this paper will be to investigate the effect that conflict has on the economic performance of Afghanistan. Literature Review Conflict leads to low human development Literature has shown that conflict is associated with poor economic performance. Research has shown that countries that experienced conflicts after 1975 have the sharpest drop in economic development (Kim and Conceicao, 2010). In this scenario, countries affected with a conflict have divided societies because of inequality and ethnic fragmentation. This measure is in tandem with the rule of law, the government institution, social nets and democratic rights. Countries that do not observe these fragments are likely to go into conflict. Featuring on the impact of a civil war is Rwanda from 1990-2000 conflict that had devastating consequence on the economy and people. The genocide caused mass loss of human capital leading to lower economic gain. This is seen in the formerly rich provinces in the East and North of Rwanda compared to the previously poor provinces in the Western and Southern parts of Rwanda (Kim and Conceicao, 2010). Any adverse economic shock causes a country delve into a vicious cycle of poverty. While a number of factors can trigger conflict, any low level of human development has a high like hood of triggering a conflict (Kim and Conceicao, 2010). Effect of Conflicts in the Middle East Several studies have examined the effects of conflicts on an economy. The results indicate that conflicts have a direct impact on a G.D.P of a country. In this scenario, civil war results in a decline of GDP. It is because; wars lead to a reduction in the countrys output and loss of capital stocks. The various wheels of the economy are affected ranging from manufacturing transportation and even consumption. The capital and the transaction-intensive sectors are negatively affected because of the conflict (Sab, 2014). In the Middle East nation countries such as Iraq, Lebanon, and Kuwait conflicts caused a decrease in the aggregate supply by destruction of the physical capital, dislocation of labour and disorganization (Sab, 2014). In this scenario, the economic efficiency in those countries was compromised because of interference in technological absorption and the dwindling of the human and physical capital. Consequently, this contraction led to weak financial systems, acceleration of inflation, and huge fiscal deficits (Sab, 2014). In the post-conflict recovery, countries rich in oil like Iraq and Kuwait recovered their aggregate supply faster than Lebanon, which is not an oil producing country. It is entirely dependent on the economy of the country. In Iraq and Kuwait oil production has a large percentage of total supply than Lebanon thus a quick economic recovery than Lebanon, which has taken a long time to recover their economy (Sab, 2014). Effects of Religious and Ethnic conflict are on the Rise Religious and ethnic divisions have also been shown to slow the economic growth of the country in many ways. The ethnic division is one of the recurrent noneconomic factor that is affecting the growth in some countries. Ethnic differences play a crucial role in various countries politics and, as a result, lead to tensions in various levels (Montalvo and Querol, n.d). Since this topic has not been featured in detail by most authors, high population growth, low level of education, low investment and high levels of political instability are the primary causes that deter a growth. On the other hand, ethnic diversity leads to little investment and hence poor economic performance and political instability (Montalvo and Querol, n.d). Consequently, religious diversity causes segmental cleavages that lead to political instability. Social factors like, religion, race and language have little to discuss but they too have an impact on economic growth. These conflicts are evident in countries like Israel and Lebanon. In these countries, we have conflicts between religious communities. Another example is Nigeria where there is a conflict between Islamic organizations. Additionally in Malaysia, we have conflicts between Christians and Muslims and finally in India, there is a conflict between Hindus and Muslims (Montalvo and Querol, n.d). Consequently, this can have an adverse effect on the economy. Conflict Effects on the structure of the economy Conflict can also affect the structure of the economy. Countries like Nicaragua and Costa Rica had the same history, language, and geographical location. However, when you compare the two countries fifty years later, Costa Rica is more developed than Nicaragua. The GDP of Costa Rica is five times that of Nicaragua (Chauvin, n.d). On matters related to human development, Costa Rica is ranked 48th while Nicaragua is ranked 110th. Costa Rica has invested in electronics, financial outsourcing, and ecotourism and software development while Nicaragua depends on an agrarian economy of production and export of cash crops (Chauvin, n.d). In the above scenario, Costa Rica has achieved economic development than Nicaragua because Costa Rica has enjoyed political stability than Nicaragua. It also faced Sandinista Rebellion in 1970s and the Contra war in the 1990s (Chauvin, n.d). In the above phenomenon, we can develop a hypothesis that conflicts are the underlying reason for economic and structural problems that are facing some of the poor countries. How Conflict Affect Growth There have been many conflicts in the world. The conflicts cause mass depletion of resources hence hindering some countries to sustain adequate economic growth. Civil war decreases the growth of physical and human capital and reductions in FDI and trade (Polacheck, 2010). Consequently, civil wars are less often in democracies. Additionally, terrorism and conflict can have adverse effects on developing countries than in developed countries. This is because developing countries will have to incur an extra cost in terms of security. However, in developed countries it will have little effect because it will absorb the problem without displaying any economic consequences (Gaibulloev et al., 2009).A country that terrorist frequent attacks may scare away investors because of the high risks involved. Terrorist commonly targets key economic targets of an economy so that their demands can be taken into consideration. This scenario creates fear and may lead to the collapse of the tourism sector as it was observed in Spain during the 1980s when the Euskadi, Ta Aska-tasuna terrorist group targeted hotels in that country (Gaibulloev et al, 2009). Furthermore, when the Basque Country was faced with an insurgency from ETA, it apparently scared away investors who chose different destinations. In this scenario, The Basque terrorist activity scared away a number of investors who could have invested there (Abadie, Gardeazabal, 2003). Hence, as the result of this phenomenon the G.D.P of Spanish economy dropped drastically since the 1960s. Furthermore, social instability can also affect growth of the economy. That can happen in the short and long run. There is a direct reduction of economic performance as most of the attention focus on conflict. In the end, social conflicts can reduce the overall investments and lead to the postponement of economic initiatives meant to boost the economy. For example, Bolivia is a country whereby a large population does not speak the countrys official language leading to lack of trust. Bolivia lacks a legal framework to prevent hostilities. It is as the result of differences in ethnicity and income divisions. Additionally, Bolivias tensions with its neighbors have contributed the country poor economic performance (Gaibulloev et al., 2009). Bolivias access to the sea is limited, and their imports solely depend on the infrastructure of their neighbors. Research has shown that landlocked countries incur extra costs on transport thus lowering their GDP. Causes of Conflicts There are numerous theories that explain the origin of conflicts. Conflicts, usually, arise from competition for resources, human instincts, struggle for power and structure of the societal institutions that create classes of people (Mayer, n.d). Additionally, less economic growth can also trigger a vicious cycle of poverty thus raising the probability of occurrence of another conflict. Majority of the civil wars in Africa are caused by dependence on natural resources and failed political institutions (Elbadawi and Sambanis, 2000). The best policies that can be undertaken to prevent the future occurrence of civil wars include instituting democratic reforms. Additionally, the intergroup cooperation can also help reduce the occurrence of civil wars (Elbadawi and Sambanis, 2000). Civil wars can lead to deterrent to economic growth and mass loss physical and human capital. Ways through, which conflicts, is Preventable With the escalation of conflicts like the Rwandan genocide, failure of the Statelike Somalia and the Bosnia Herzegovina war brought the world together on the importance of solving the conflict at an early stage before it escalates. Conflicts can be solved using diplomacy (Wallensteen and Moller, n.d). In this scenario, this will prevent war escalation that might lead to further destruction. Additionally, the practice of democracy and the holding of elections can help in maintaining peace in developing countries (Flores et al., 2011). In post-conflict situations countries like Rwanda and South Africa, which are healing the post-conflict situations, reconciliation and internal assistance has played a critical role in economic stability (Kumar, 1999). Consequently, in extreme situations of conflicts, the deployment of the international peacekeeping missions is crucial in the restoration of peace and stability as it happened Liberia (Patterson, 2014). Collier et al., (2014) concludes that economic development is one among the pillars of stability in the developing countries. Summary of the Literature Review Conflicts have adverse effects on the growth of the economy. Countries that have hit by a conflict it, usually, takes a long time before stability is installed. Additionally, conflicts lower the GDP of a country, and this can lead to high poverty levels that can create another conflict. Moreover, conflicts can affect the structure of the economy like the case of Costa Rica and Nicaragua. Additionally, conflicts can be resolved using diplomacy. Conflicts lead to the destruction of human and physical capital leading to the stagnation of the economy. Conflicts are, usually, triggered by competition for resources and amongst other factors like ethnicity and religious factors. Finally, this study is important because it highlights how conflicts affect an economy, its causes, and on how conflicts can be prevented. In my view, leaders should always embrace democracy, observe human rights, and promote equity to prevent the outbreak of conflicts. In Context of Afghanistan This section will consist of information about the numerous conflicts that have been happening in Afghanistan. (The choice of Afghanistan was because numerous studies was done on other countries, but few of this kind had been done in Afghanistan). This section will talk more about the effects of conflicts on the economy of Afghanistan. Thereafter, it will analyze sections that were worst hit. Variable and Operationalization The independent variable within this study will be conflict. Reason being, it is the variable constantly subject to variation, and it is not measurable but its outcome is. On the other hand, the dependent variables within this study are the household, community level, and the sector. This output is measurable. The independent variable is the supposed cause. On the other hand, the dependent are the results. Within this study, household, community level, and the sector are the variable that are constantly undergoing change due to the effect of conflict. The above named variables will be operationalized into quantifiable aspects. In this study, operationalization of variables will be done by dividing the variables further into smaller sub-variables. This is with the aim of enhancing measurability. The hypothesized relationship existing between the independent and dependent variables is that with emergence of conflict the household, community level, and the sector will be subjected to a negative change, however, the level of recovery of various sectors greatly differ. This section entails the process of defining the variables into measurable aspects. It does this with the purpose of limiting vague ideas or partial truth. Within this study, variables definition will be done in order to enable exact duplication of the research process. This study will utilize operationalization for the purpose of strengthening and clarifying the formulated hypothesis. For instance, operationalization has enabled the researcher to narrow down his/her study to Afghanistan. Similarly, it enables the researcher to single down his/her study to a specific period for illustration, this study will be from the year 2001 to the year 2013. Case Selection The following are some of the case selection criteria that I used into consideration to enable effective case selection. First, is the relevance to the intended audience and the objectives, second, description of the context and the case, third, articulating the case. This is usually with the aim of assessing the extent to which the case seeks to explain a reasonable ethical challenge that is relevant to the research. Finally, the effectiveness of the questions is, invigorating discussion of ethical matters about the topic of the study. During the design stage, the use of multiple cases will be more convenient. My study consists of ten cases. In the use of multiple cases, every case is viewed as a single case. The use of ten cases aims at positively contributing to the study. However, every case is treated as a single case. For picking the right cases, the use of exemplary case studies is convenient. Reason being, it will set up boundaries regarding the scope of the study. The method of multiple cases was considered as being ideal since it equips the researcher with information he/she needs and which method is efficient in collecting it. The cases selected are comparable and they are an area representation of a larger phenomena. In the need to avoid biasness in the selection of a case study, the selection of the biased study is avoided by looking at the possible loopholes that a biased study might get through. For effective selection of cases that are unbiased in nature, a period of two weeks will is used to separate the biased from unbiased. Methodology for Data Collection and Analysis Since data collection forms an important part of a research, choosing the right methodology will guarantee the success of the study. There are various methods of data collection. However, the most convenient one in this case is the collection of data from documentation. In addition, the use of questionnaires will also act as an added advantage. These questionnaires are given to various households that have experienced conflict and are know some bit of information about the aftermath. The purpose of using multiple methods is to enhance the nature of the data to be collected. This is to imply that, we gather as much data as possible regarding the effect of conflict on the economy of Afghanistan. Thereafter we shall collect and combine two categories of data. This will consist of the household data and conflict data obtained two successive population censuses. The collection of the data would cover a period of twelve years from 2001. The combined data will consist of variables within the household, community level, and sector. The household and the consumption aspects will be within the household level, the control variable will be within the sector level, and the instrumental variable and conflict index will be on the community level. In the need to show the robustness of the sector and household level we use regression. Thereafter we shall measure the economic performance at the household level, calculated with the household consumption, and thereafter obtained. In order to measure the conflict, we use the illustrations from Verpooten (2011). This will lead us into formulating three indices. Thereafter we could do an analysis of the output. Results It is expected that areas within Afghanistan that experienced maximum violence experienced a lower consumption level as compared to other regions. Use of IV approach clearly reflects the discrepancy between areas that with heightened conflict intensity. The reason behind a lower consumption rate in areas that experienced intensive conflict is because it takes a longer time for recovery to take effect fully. As seen from the estimating equation, it is evident that areas that had zero cases of conflict had positive returns. On the other hand, the expectation had an inverse relationship. The estimation by use of the OLS and IV model reveals that different types of conflict have different effects. The types of conflict will be seen playing a significant role in various sectors of Afghanistan’s economy. For illustration, both the skilled and unskilled labor is affected. Robustness Checks Since the experiential study of conflict experiences a number of challenges, we conduct a series of robustness checks. Its main purpose is to address various levels of weaknesses brought about by the data. At first, we perform the verification process to determine whether the expectation equation is specifying accurately. The focus of this process will be to access the level of significance of the unobserved factors. Thereafter, we investigate for changes in the event that we use alternative observations. If the findings will indicate biases, in the need to address this we use three set of indices. Afterwards, we use a different strategy to assess if the affected give similar results. Finally, the difference in difference estimation is done as a substitute to the instrumental estimation of variable. Conclusion The paper investigates the effect that conflicts possess to the economy of Afghanistan through micro-economic analysis. The study will be effected through joining a mere body of work that examines the impact of conflict to the economy of various countries to that of a single one. This analysis differs from previously existing works in the following ways: first, it examines the impact of conflict to the human capital. Secondly, not to the physical wealth and considers the economy a year after the conflict as compared to other studies that, usually, range from a period of thirteen years to twenty. The study has used data from a well-off household and that of violence in Afghanistan. The study concludes that regions that experienced intensified conflict levels have remained behind in matters to do with consumption. It is contrary to those who experienced no conflict. The finding of this paper on economic performance differs to that of other studies of the related topic. Reason being, it is less than three years since the end of the Afghanistan conflict. It takes a longer period for the region affected by conflict to recover economically. It is also the main reason there is also low consumption in areas around Afghanistan that have been affected by conflict. Conducting the study, shorter time after a conflict has both merits and demerits. In this case, the demerit associated with this study is that the short period from the end of the conflict to when the study has been conducted limits the researcher from making any inference. On the other hand, the merit associated with this paper involves the strength of data. Reference Abadie, A., & Gardeazabal J. (2003). 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