Low-intensity Conflict and Firm Level Investment in Ethiopia

This paper investigates the effect of low-intensity armed conflict on firm-level investment in a Sub-Saharan African country. We match firm level panel data from Ethiopian manufacturing with battle events at the town level. Using a more precise spatial identification of conflict exposure, we find that conflict reduces the investment rate significantly even when events are not extremely violent. The adverse investment effect increases with the geographic proximity of conflict and tends to decline with the capital intensity of production.