Centre for Development Economics
Department of Economics, Delhi School of Economics


Financial Development and Domestic Conflict: Can Finance Combat Conflict?


Sankar De

Thursday, 8th October 2015 at 3:00 PM

Venue : Seminar Room (First Floor)
Department of Economics, Delhi School of Economics

All are cordially invited

A conflict is typically a complex phenomena with multiple dimensions; social (ethnic and religious differences), political (civil wars), economic (control of natural resources). In this paper, we investigate whether an economic intervention can mitigate conflicts, given its multi dimensional nature. In particular, we are interested in understanding whether a financial intervention within a market framework, either an increase in bank credit supply or an increase in the number of bank accounts, in conflict-affected areas can reduce the volume and intensity of conflicts. Using a model as well as extensive empirical tests with district-level data from India over a long sample period (1983 2010), we find strong evidence that supports our models prediction that financial development mitigates conflicts. Multiple identification checks establish causality of our findings. We also investigate the channel through which credit impacts conflict. Our tests indicate that employment growth due to financial development serves as a beneficial channel from financial development to conflict. However, in the case of mining credit two opposing channels, employment growth and rising inequality in land distribution offset each other. It is the first paper to connect financial development with conflicts.

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