External Wars, Internal Conflict and State Capacity: Panel Date Evidence

Relying on cross-country data, empirical studies have pointed at external wars as engines for the development of a state’s capacity, and at internal conflicts as having the opposite effect. Concerns about possible reverse causality driving these results emerge, as the cross-sectional approach ignores the role of initial conditions and the persistence of state capacity. This paper re-examines the impact of external and internal conflict on state capacity using panel data to overcome these limitations. Two different data panels are analyzed, one covering countries, another covering Colombian municipalities. Beyond methodological differences with respect to previous work, we also add to the existing literature by looking at the impact of different attributes of conflicts: intensity, and types of conflict-related events. Large variability across municipalities allows us to zoom on multiple dimensions of conflict. We find that internal conflicts deteriorate state capacity both at the country and municipal level, and that more intense conflicts have a stronger negative impact. Moreover, episodes where civilians feel targeted affect the state’s capacity to collect taxes, while those with more general reach affect the state’s capacity to provide public goods. External conflicts, however, do not seem to affect on state capacity once initial conditions and endogeneity issues are taken into account. 1 We thank participants at the 2010 AEA meetings and the 2010 LACEA Annual Meeting for very helpful comments. Andrés Corredor assisted with the municipal database and José Tessada provided crucial country data. 2 Senior Fellow, Brookings Institution. Email: [email protected] 3 Associate Professor of Economics, Universidad de los Andes. Email: [email protected] 4 Graduate student, Universidad de Los Andes. Email: [email protected]