Guns and Roses: The Impact of the Kenyan Post-Election Violence on Flower Exporting Firms

While political instability is broadly believed to be bad for economic growth, firm performance and foreign direct investment, few studies convincingly identify the causal impact of conflict on firms and export performance.  In this paper, we analyze the impact of the Kenyan post-election violence on a hugely successful export oriented industry, the Kenyan flower industry.  Using export information on all Kenyan grower-exporters, we show that the conflict reduced Kenyan flower exports by 24% overall.  To account for demand shocks in the export markets, we then exploit the cross-regional variation in the post-election violence to identify the effect of the conflict on firms' export volumes.  We find that the conflict reduced exports by 38% for firms located in conflict areas, mainly through displacing workers.  The displacement of semi-skilled workers is also shown to have had impacts substantially beyond the duration of the conflict.  While there is no evidence to suggest that the conflict affected export volumes in the areas without conflict, we find evidence that it did change exporters' behaviour.  Shipments were consolidated and exported less frequently, while security expenses rose.  This suggests that exporters in non-conflict areas reacted to the increased insecurity by transporting larger, more secured shipments to the airport less frequently.