Conflicts and Peace Dividends in Developing Countries: A Comparative Analysis

Sub-Saharan Africa's dismal development outcomes-growth collapse and declining real income-are often used to highlight its sharp development contrast with other regions of the developing world. Drawing on a large cross-section analysis, this paper shows that Africa’s underlying dismal growth performance can be largely accounted for by high political risk and uncertainty which undermined investments and growth prospects in the region over most of the post-independence era. This hypothesis is further supported by empirical evidence. In particular, counterfactual simulations based on a variation of neoclassical growth models and under the hypothetical equalization of political risk profile alternative result in large economic returns, reflected in the significantly higher level of aggregate output and income in the subset of conflict-affected countries. Income levels get even higher when the hypothetical reduction of political risks alternative is accompanied by sustained increases in capital accumulation.