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Is Divorce a Solution? Decentralization Effect on Economic Growth in Post-Civil Conflict Countries

Samer Hamati ORCID logo EMAIL logo

Abstract

Civil conflict is the nation’s most important historical event, and it became more frequent in countries already emerged from previous conflicts. High economic growth, as well as other institutional procedures, is key to break this conflict trap. Thus, the current article explores the role decentralization may play to enhance economic growth in post-civil conflict countries. In order to avoid untrue peaceful cases, the article adopted a strict criterion of post-conflict periods, leading to a small dataset. Distinguishing between two forms of decentralization and using two equations with different techniques, the article finds a hampering effect of fiscal decentralization on economic growth in countries emerging from civil conflicts, while it finds insignificant mixed effects of political decentralization. These findings support the distinction made between the real de facto decentralization and the official de jure one. They validate the belief that although central authorities in many countries pretend to apply decentralization, they limit its effectiveness by some legal procedures creating “fake” decentralization.

Appendix

Table 6:

The full and the short samples of political decentralization.

CountryLast year of conflictFirst year of peacePost-Conflict GDP pc growth (%)Post-Conflict GDP pc growth-average (full peace period)Serial number of this war in the countryConflict yearsPre-war yearWartime combinedPeacetimePeace period (years)Sustainable political decentralizationThree consecutive years of peace
Angola199519968.033.9812119741975–19951996–19972
Angola200220031.586.092519971998–20022003–20141211
Argentina19771978−5.901.311419731974–19771978–2014371
Azerbaijan19941995−12.810.301319911992–19941995–19962
Azerbaijan199819996.4610.052219961997–19981999–200571
Bangladesh199119923.093.6711719741975–19911992–20142311
Bolivia19671968−13.930.8011196619671968–2014471
Bosnia1995199692.3610.631419911992–19951996–20141911
Burundi200620071.141.2611319931994–200620071
Burundi20082009−0.110.6421200720082009–201461
Cambodia197519763.151919661967–19751976–19772
Cambodia199819999.226.2822119771978–19981999–2014161
Cameroon196119620.840.8712196019611962–1983221
Chad19721973−10.55−1.591719651966–19721973–197531
Chad1984198518.502.092919751976–19841985–19862
Chad1987198811.840.603219851986–198719881
Chad19941995−2.071.764619881989–19941995–19962
Chad2003200428.727.065719961997–20032004–20052
Chad20102011−3.192.046620042005–20102011–201441
Congo, Dem. Rep.196519663.830.031219631964–196519661
Congo, Dem. Rep.196719681.38−1.3321196619671968–197691
Congo, Dem. Rep.19781979−2.34−4.823219761977–19781979–1995171
Congo, Dem. Rep.20012002−0.132.294619951996–20012002–200541
Congo, Dem. Rep.20082009−0.423.555320052006–20082009–201461
Congo, Rep.199920004.902.841319961997–19992000–20012
Congo, Rep.20022003−1.451.8521200120022003–2014121
Croatia1995199610.002.5811199419951996–20141911
Cuba196019612.55121956*1957–19581959–201455
El Salvador199119926.142.4011319781979–19911992–2014231
Ethiopia201320147.217.2115019631964–201320141
Georgia19931994−9.495.511219911992–19931994–20142111
Guatemala199519960.481.2513019651966–19951996–2014191
India196019611.681.66141955*1956–19591960–19612
India19711972−2.823.4721019611962–19711972–1981101
India201020115.235.1632919811982–20102011–201441
Indonesia19611962−0.753.3714196019611962–1974131
Indonesia198819897.113.4821319751976–19881989–199681
Indonesia200520064.124.353919961997–20052006–2014911
Iran196819699.93−0.131219661967–19681969–1978101
Iran198819892.886.832919791980–198819891
Iran1990199110.402.4431198919901991–19922
Iran199719980.821.634219951996–199719981
Iran200120026.113.865319981999–20012002–200431
Iran20112012−7.76−3.596720042005–20112012–201431
Iraq197019711.904.571919611962–19701971–19722
Iraq1996199717.505.3022419721973–19961997–200261
Israel199619971.311.7414719491950–19961997–1999311
Israel201220131.341.0821319992000–20122013–20142
Laos19611962131958*1959–19611962–19632
Laos197319741.6321019631964–19731974–1988151
Laos199019911.354.883219881989–19901991–2014141
Lebanon19601961111957*19581959–1974161
Lebanon197619772219741975–19761977–198151
Lebanon19861987−8.663519811982–19861987–19882
Lebanon1990199135.723.484219881989–19901991–2014141
Liberia200320040.673.051419981999–20022003–2014121
Mauritania197819791.830.631319751976–19781979–2014361
Morocco198919900.882.5111519741975–19891990–2014251
Mozambique199219934.454.2211519771978–19921993–2014221
Myanmar201120127.351631948*1949–201120121
Myanmar201320147.587.58212012201320141
Nepal200620072.343.4011119951996–20062007–201481
Nicaragua197919801.63−3.151319761977–19791980–19812
Nicaragua19901991−2.361.882919811982–19901991–2014141
Nigeria1970197111.611.291419661967–19701971–2010401
Pakistan19711972−1.901.1611197019711972–197431
Pakistan197719784.732.372319741975–19771978–2003261
Pakistan200420055.501.95312003200420051
Peru199920001.294.0311819811982–19992000–200671
Peru201020115.073.752420062007–20102011–201441
Rwanda1994199537.138.931519891990–199419951
Rwanda20022003−0.274.842719951996–20022003–200861
Rwanda201220132.223.353420082009–20122013–20142
Senegal199819993.812.121219961997–19819991
Senegal20012002−1.970.942219992000–200120021
Senegal200320043.041.0431200220032004–2010711
Senegal201120120.280.4341201020112012–201431
Serbia199119920.2511199019911992–199761
Serbia199920008.103.962219971998–19992000–20141511
Sierra Leone2001200220.506.0511119901991–20012002–2014131
Somalia1996199711119851986–19961997–200041
Somalia200220032220002001–20022003–200531
South Africa198819890.130.6412319651966–19881989–201426
Vietnam196419654.831101954*1955-19641965–2014501
Sri Lanka19711972−1.733.1611197019711972–1983121
Sri Lanka200120023.283.9221819831984–200120021
Sri lanka200320044.024.81312002200320041
Sri Lanka200920106.957.254520042005–20092010–201451
Sudan19721973−2.412.211919631964–19721973–1982101
Syria19821983−2.111.101419781979–19821983–2010181
Tajikistan199819992.315.711719911992–19981999–2009111
Tajikistan201120125.104.812220092010–20112012–201431
Thailand198219833.654.201919731974–19821983–2002201
Turkey201320141.621.6212019931994–201320141
Uganda199219934.903.9711419781979–199219931
Uganda201120121.050.7221819931994–201120121
Yemen197019711919611962–19701971–197881
Yemen198219831.082419781979–19821983–1993111
Yemen199419951.290.2831199319941995–2008141
Zimbabwe1979198010.37−0.401719721973–19791980–20143511
Timor-Leste1999200016.664.682319961997–19992000–20141511
Eritrea1992199313.811.5312919631964–19921993–20141211
  1. Source: UCDP/PRIO dataset and World Development Indicators (2017).

  2. Since pre-1960 data are not available in the WDI, we use data of 1960 as pre-war data when a cell is indicated with *. 1 in columns12 and 13 means the condition is met. pc stands for per capita. Table 12 describes the variables.

Table 7:

Descriptive Statistics of the stricter sample of political decentralization dataset (4 consecutive years of peace).

Political decentralizationPost-Conflict GDP pc growth (%)aWar period (years)Post-Conflict GDP pc level (USD)cEconomic damage (%)Peace period (years)Ethnic fractionalizationbSecondary school enrollmentbExecutive constraintsbVoice and accountabilityb
61 Cases of post-conflict periods with at least one arrangement of political decentralization
 Mean3.257.71123313.3815.390.5344.713.79−0.68
 SD2.737.59144246.6210.540.2625.882.040.67
 Min−4.371146.8−66.3540.00235.611−1.98
 Max11.46307264250.9500.9199.2270.4
50 Cases of post-conflict periods
 Mean3.077.8115516.3115.040.5442.073.54−0.84
 SD2.687.44127248.711.090.2724.712.10.67
 Min−4.3661146.8−66.3540.00235.611−1.98
 Max11.46305189250.9500.9199.2270.395
11 Cases of post-conflict periods with no forms of political decentralization
 Mean3.997.271530−3.36170.5357.564.9−0.26
 SD2.938.59201329.427.790.2129.591.50.46
 Min−0.40451212−65.2870.04518.413−1.26
 Max10.6329726419.77350.889.2370.30
  1. Sources: Author’s computations based on Table 6.

  2. a means that the value mentioned is an average for the whole PC period; b means that the value mentioned is an average for the first two years in the PC period; c means that the value mentioned is for the first year in the PC period; d means that the value mentioned is an average for the last 3 years in the pre-conflict period; e means that the value mentioned is for the last year in the pre-conflict period. The GDP per capita is measured with constant 2005 USD. pc stands for per capita. Table 12 describes the variables.

Table 8:

Economic growth averages during the conflict circle between the two groups of countries.

SustainablePre conflictPre conflictPre conflictPre peacePre peacePre peacePre peacePre peacePeacePeacePeacePeacePeacePeace
PD−3−2−1−5−4−3−2−1123456
No−1.52.93.42.011.991.011.122.653.073.673.323.022.442.94
With1.51.610.50.1−1.57−6.80.2113.9710.144.74.464.483.67
  1. Source: Author’s computations based on Table 6.

  2. Pre conflict indicates the peaceful period before the conflict erupts. Pre peace indicates conflict years before the peace comes. Peace indicates the peaceful post-conflict period. PD stands for political decentralization. Table 12 describes the variables.

Table 9:

Robustness check for political decentralization equation.

VariablesModel PD5Model PD6Model PD7Model PD8
Log of initial GDP pc−0.00755**−0.0762−0.00631
(0.00365)(0.0768)(0.00525)
Log of capital formation0.02860.2490.00843
(0.0184)(0.213)(0.0171)
Log of public consumption−0.008520.0980−0.00187
(0.00625)(0.114)(0.0121)
Population growth−0.00828***−0.0387−0.00881
(0.00253)(0.0343)(0.00725)
Executive constraints−0.001420.0182−1.23e-05
(0.00183)(0.0229)(0.00187)
Secondary school enrollment0.000320**−6.88e-050.000373
(0.000137)(0.000567)(0.000223)
Trade openness0.000170−0.003430.000397**
(0.000102)(0.00337)(0.000165)
Political decentralization0.00849−0.00221−0.04980.00242
(0.00845)(0.00430)(0.0560)(0.0135)
Economic damage6.49e-05−0.0006000.000450**
(9.02e-05)(0.000583)(0.000212)
Ethnic fractionalization−0.01420.110−0.0412*
(0.0170)(0.142)(0.0236)
Obs.57321220
R20.0180.6360.9760.773
RMSE0.0250.0170.0110.015
  1. Source: Authors’ computations based on regressing Equation (1).

  2. The regressions in Models PD5 and PD6 build on an annual unbalanced panel covering 61 cases of post-civil conflict periods in 47 countries and spanning between 1960 and 2014. The regression in Model PD7 builds on a sub-group that includes only the PCCs where the conflict incompatibility concerns controlling over territory, while the regression in Model PD8 builds on a sub-group that includes only the PCCs where the incompatibility concerns controlling over central power. Robust standard errors in parentheses. ***, **, *indicate significance at the 1, 5, and 10%, respectively. pc stands for per capita. Table 12 describes the variables.

Table 10:

Robustness check of fiscal decentralization equation.

VariablesModel FD6Model FD7Model FD8Model FD9Model FD10
Log of capital formation0.0576**0.0608***0.0310***0.229***
(0.0246)(0.0147)(0.00853)(0.0207)
Log of public consumption−0.0458***−0.0261−0.0488***0.0169
(0.00879)(0.0259)(0.00925)(0.0708)
Population growth−1.756***−2.779***−1.540***−4.178
(0.401)(0.853)(0.345)(3.376)
D. Executive constraints0.004640.004060.02220.000862
(0.00401)(0.00723)(0.0164)(0.00433)
D. Secondary school enrollment0.001420.0009120.00336−0.000807
(0.00242)(0.00157)(0.00402)(0.00212)
Trade openness−0.000472−0.000703**5.73e-05−0.000773
(0.000622)(0.000343)(0.000441)(0.00108)
Fiscal decentralization−0.0150−0.0351**−0.0485**−0.0279**−0.137**
(0.0142)(0.0162)(0.0218)(0.0108)(0.0451)
Ethnic fractionalization0.0801
(0.0810)
Economic damage−3.16e-05
(0.000531)
Observations1621161018036
R20.0110.2910.2760.781
Number of wars17161497
F-test for joint significant of fixed effects14.27***36.41***5678.62***37.03***
RMSE0.0330.030.0310.021
Sigma_u0.035
Sigma_ε0.029
Rho0.59
Wald χ21.867
  1. Source: Authors’ computations based on regressing Equation (4).

  2. The regressions in Models FD6, FD7, and FD8 build on an annual unbalanced panel covering 61 cases of post-civil conflict periods in 47 countries and spanning between 1960 and 2014. The regression in Model FD9 builds on a sub-group that includes only the PCCs where the conflict incompatibility concerns controlling over territory, while the regression in Model FD10 builds on a sub-group that includes only the PCCs where the incompatibility concerns controlling over central power. Robust standard errors in parentheses. ***, **, *indicate significance at the 1, 5, and 10%, respectively. We estimate Model FD8 using Hausman-Taylor estimator, with expenditure decentralization, economic damage, population growth, and executive constraints are treated as endogenous variables. D. means that we use the first differences for this variable. Description of the variables used is in Table 12.

Table 11:

Between and within components of the standard deviation of our data.

VariablesMeanSD
Log of economic growth pcOverall0.0250.055
Between0.026
Within0.049
Log of economic level pcOverall6.90.99
Between1.033
Within0.206
Log of capital formationOverall2.9850.426
Between0.332
Within0.305
Log of public consumptionOverall2.5400.537
Between0.469
Within0.264
Log of population growthOverall0.01980.011
Between0.011
Within0.006
Executive constraintsOverall0.0150.557
Between0.146
Within0.549
Trade opennessOverall66.28532.779
Between29.689
Within17.307
Economic damageOverall6.44532.444
Between44.159
Within0
Secondary school enrollmentOverall1.2932.270
Between1.234
Within2.126
Expenditure decentralizationOverall0.4450.398
Between0.358
Within0.227
Ethnic fractionalizationOverall0.5240.247
Between0.252
Within2.23E-16
  1. Source: Authors’ computations.

  2. SD stands for standard deviations. The analysis builds on an annual unbalanced panel covering 61 cases of post-civil conflict periods in 47 countries and spanning between 1960 and 2014. Overall stands for the overall deviation; Between stands for the deviation between countries; Within stands for the overtime deviation within countries. pc stands for per capita. Table 12 describes the variables.

Table 12:

Definitions and sources of the variables used.

VariablesDescriptionUnitSource/Based on
Per capita GDP Growth in Political Decentralization EquationThe difference in the log of per capita GDP between the end of the conflict and the end of the PC period% AnnualWorld Bank/WDI
Per capita GDP Growth in Fiscal Decentralization EquationThe difference in the log of per capita GDP in two consecutive years% AnnualWorld Bank/WDI
Log of initial GDP pcThe logarithmic value of per capita GDP in the first peaceful yearconstant 2005 USDWorld Bank/WDI
Political decentralizationA dummy variable taking a unitary value if the peace agreement involves at least one form of decentralization0/1Uppsala Conflict Data Program/Peace Agreement Dataset
Sustainable political decentralizationA dummy variable taking a unitary value if the peace agreement involves at least one form of decentralization and the agreement sustains0/1Uppsala Conflict Data Program/Peace Agreement Dataset
Log of capital formationThe logarithmic Value of the gross fixed capital formation as a percentage of GDP% of GDPWorld Bank/WDI
Log of public consumptionThe logarithmic Value of the governmental current expenditure as a percentage of GDP% of GDPWorld Bank/WDI
Population growth in political decentralization equationThe difference in the log of the population between the end of the conflict and the end of the PC period% AnnualWorld Bank/WDI
Population growth in fiscal decentralization equationThe difference in the log of the population in two consecutive years% AnnualWorld Bank/WDI
Executive constraintsThe extent of institutionalized constraints on the decision-making powers of chief executives, whether individuals or collectivises. Values are expressed in a 7-category scale, ranging from unlimited authority to executive parity or subordination1–7Polity IV dataset
Secondary school enrollmentThe ratio of total secondary enrollment, regardless of age, to the population of the age group that officially corresponds to that level of education%World Bank/WDI
Trade opennessThe ratio of exports and imports (in the local currency) to GDP (in the local currency)%World Bank/WDI
Ethnic fractionalizationEthnic fractionalization is measured by the ethnolinguistic fractionalization index. It measures the probability that two randomly drawn individuals from a given country do not belong to the same group. It ranges between 0 and 1. We use the religious fractionalization index when the ethnic index is absent0–1Alesina, Devleeschauwer, Easterly, Kurlat, and Wacziarg (2003)
Economic damageThe simple GDP change between the beginning and the end of a conflict% of the pre-conflict GDPWorld Bank/WDI
Expenditure decentralization indexIt represents the average share of the local expenditures as a percentage of the overall expenditures in a specific country%World Bank/WDI

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