Editor’s Note: An earlier version of this paper was presented at the AEA meetings in Atlanta, GA, on January 4, 2010, and at the LACEA 2010 meetings in Medellin, Colombia. We want to thank Andrés Corredor for help with the municipal database and José Tessada for guidance on the cross-country databases.
This paper offers additional evidence on the relationship between conflict and state capacity, understood as the ability of the government to raise tax revenues and deliver public goods, such as the rule of law. The major innovation of the paper is the use of two panel datasets (with national and sub-national information, respectively) in a setting that accounts for initial conditions and fixed effects (which are a source of bias in previous results). At the national level, our results show that internal conflicts reduce state capacity both across and within countries. Moreover, the evidence suggests that these effects increase with the intensity of the conflict. The main difference with the existing literature is related to the role of external conflicts, which do not have a positive effect on state capacity, contrary to previous findings. The sub-national evidence is based on a panel of Colombian municipalities. The main result is that after correcting for potential endogeneity the incidence of conflict reduces the state’s capacity to collect taxes and invest in infrastructure. In sum, the new evidence strongly supports the claim that internal conflict undermines state capacity, while it rejects the claim that external conflict leads to stronger state capacity.