Economics of War and Peace: Economic, Legal, and Political Perspectives

Emerald Group Publishing Limited
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  • Chapter 6 Terrorism and violent internal conflict in post-soeharto Indonesia: Beyond the Jihadi prism of analysis

    Purpose – Since September 2001, most studies of terrorism have focused on the motives and operations of transnational terrorist groups, especially Islamist jihadi groups. Yet statistics from the past decade indicate that most terrorist attacks occurred within violent internal conflicts. Indonesia is a case in point. Following the fall of the Soeharto regime in 1998, terrorism became a hallmark of separatist and inter-communal violence that cost the lives of thousands of Indonesians. The aim of this chapter is to look beyond the jihadi-focused prism of terrorism studies and to examine the secessionist conflicts in Aceh and Papua to determine why and to what extent terrorism was used by the Free Aceh Movement (GAM) and the Free Papua Movement (OPM) respectively, and the role that economic factors played in the process.Methodology – By synthesising the causes of violent internal conflicts and of terrorism, a framework of societal and organisational factors is constructed to explain why terrorism was used by GAM and OPM, and why, in the case of GAM it stopped, while in the case of OPM, it continues.Findings – In general, socio-economic and political factors rather than religious ideology explain why terrorism was used by GAM and continues to be used by OPM in their respective secessionist conflicts. Economic grievances fuelled by resource exploitation and inequitable sharing of resource rents have been contributing factors.Originality/value of chapter – The analysis departs from previous approaches, which have focused primarily on the causes and course of the conflicts themselves and not on when and why such conflicts have included terrorist attacks.

  • Chapter 7 Great expectations: Prospect theory and oil price volatility in Iran

    Purpose – This chapter examines the impact of oil price volatility on domestic political stability in a key supplier state.Methodology – This chapter uses prospect theory to analyse socio-political instability based on significant changes in a supplier state's largest revenue source. Prospect theory posits that decisions are framed around a pivotal reference point which may or may not correspond to the status quo, but which nonetheless directly affects risk appetite. This analysis uses Iran as a case study, and relative oil price as the reference point to analyse risk-acceptant decision-making surrounding the 2009 Presidential election.Findings – Dramatic economic context could be a contributing factor to risk-acceptant behaviour in domestic politics. Specifically, volatile price swings in Iran's main source of income, oil, which contributes over 80 per cent in direct and indirect revenue, and perceived external decline therein, may have been a destabilising factor. Combined with loss aversion, this context may have facilitated measures beyond those dictated by rational utility calculus to secure conservative rule in the 2009 election, and in the ensuing unrest.Research Limitations – Prospect theory is difficult to test outside of carefully framed laboratory experiments. Although its insights have been applied to investment behaviour, management and domestic politics, in conflict studies, robust empirical support remains underdeveloped. Moreover, since prospect theory is an individual model of decision-making, difficulties arise when dealing with nation states with multiple centres of power.Implications – Prospect theory may be a useful analytic tool for analysing risk-acceptant decision-making in the context of dynamic economic situations.Originality – Although this analysis complements research on rentier state theory, prospect theory integrates recent developments in behavioural economics and political psychology that may offer a new way to conceptualise the role of expectations and choice framing in decision-making which drives political stability.

  • About the authors

    Aditya Agrawal is a scholarship graduate from Bond University (2006, first class honors in Management Science) and the 2007–2008 summer scholar at the Strategic and Defence Studies Centre, Australian National University. He commenced work at the University College, Australian Defence Force Academy in June 2008 and is currently reading for his doctorate in military outsourcing. Previously he has worked with both the corporate sector and the government departments. He has published in scholarly journals and peer-reviewed conferences and was awarded the Best Paper Prize at the national Australian Conference on Information Systems (ACIS 2007).

  • Chapter 8 Does fiscal policy differ between successful and unsuccessful post-conflict transitions? Lessons from African Civil Wars

    Purpose – The chapter studies the impact of fiscal policy on the stabilisation of peace in the aftermath of a civil war.Methodology – We use data from African war-torn countries and study the issue of post-conflict stabilisation from an empirical perspective. We employ probit analysis to formally estimate the effect of fiscal policy on the probability of maintaining peace in the post-conflict period.Findings – The success of post-conflict transition does not require downsizing the government. On the contrary, successful post-conflict transitions are on average characterised by an increase in the size of the government. However, both expenditures and revenues increase at a comparable pace. Moreover, in successful post-conflict transitions, the increase in government size involves an increase in the incidence of capital expenditure relative to government consumption. On the revenue side, budgetary grants appear to strengthen the chances of success. A heavier debt burden does not seem to compromise the probability of successfully completing the post-conflict transition.Research limitations/implications – Future research should (i) extend the sample to non-African countries, (ii) extend the analysis to other macroeconomic policy variables and (iii) supplement cross-country analysis on the role of fiscal policy with country case studies. A potential application of the findings of this chapter is the construction of a model to predict the evolution of currently ongoing post-conflict transitions.Social implications – The findings bear implications on how governments should conduct fiscal policy in the aftermath of a conflict. They also provide guidelines for the international community on how best to assist post-conflict economies.Originality – Papers concerned with the determinants of peace in the post-conflict period do not generally look at the potential contribution of fiscal policy. This chapter is the first attempt, to the best of our knowledge, to provide econometric evidence on the role of fiscal policy as a possible driver of peace stabilisation in the aftermath of a conflict.

  • Acknowledgments
  • Chapter 9 The Collier challenge: how can reliable transitional financing systems be created in ‘barely functional’ states?

    Purpose – This chapter uses the work of Oxford economist Paul Collier to explore the conditions under which financing systems can be created to support the governance and economies of fragile states. This support is especially needed in the immediacy of a crisis or as a practical strategy to potentially change the dynamics of a particularly vulnerable state. The focus is on his 2008 proposal for Haiti, for a partnership of domestic and international financial institutions. Central to the proposal is the establishment of an Independent Service Authority (ISA) to fund and implement government policy, especially in delivery of basic services. Representatives from aid donors, Haitian expatriates or diaspora and members of the government would sit on the ISA board, sharing responsibility for effectively administering public funds. This model was proposed to the United Nations in late 2008 to stabilise and transform the government and economy of Haiti (Collier, 2008, 2009b).Methodology – The chapter explores the issues raised in the model using a case study of the Regional Assistance Mission in the Solomon Islands (RAMSI).Findings – “The work concludes that the RAMSI process worked well to stabilise financial systems and survived significant political challenge due to a framework of local agreements, regional or international resolutions, treaties, statutes and contracts. This suggests that such a framework will help to ‘buttress’ any mixed local–international financial institutions in the event of domestic political or legal contest in Haiti (or wherever else this model is considered).Limitations – The chapter does not compare Haiti and the Solomon Islands as societies or economies, or go into the details of how the proposed financial institutions would operate and transition to other arrangements. Space also prevents consideration of the other international partnership models applied in Haiti from 2006–08 (e.g. the Haiti Economic Governance Reform Operation or EGRO; see the case study on Haiti by Bradford and Scott (forthcoming), 76–84). After the earthquake in January 2010, Collier re-visited Haiti and stressed the importance of longer-term economic transformation (a Haiti Marshall plan) as well as emergency relief.**Collier, P., & Warnholz, J.-L. (2010a). Haiti earthquake: Social and economic fabric must be rebuilt too. The Guardian, Sunday, 17 January. Available at; Collier, P., & Warnholz, J.-L. (2010b). We need a Marshall plan for Haiti. Globe and Mail, 13 January. Available at A key element of the international community's assistance will be finding mechanisms to handle finances. However the details of the new proposals are yet to be made public, hence this chapter focuses solely on Collier's 2008 proposals.

  • Author Index
  • Conflict Management, Peace Economics and Development
  • Chapter 1 Introduction

    In their chapter, ‘A method to compute a peace gross world product by country and by economic sector’, Jurgen Brauer and John Tepper Marlin present a novel method to assess the economic value of peace, in both the domestic and international realms. This is not only a tool for assessing and forecasting the potential benefits of reduced violence, but it is an example of best social science practice in that by design it incorporates the best existing knowledge on the effects of peace. This approach combining meta-analysis with a novel integrating framework is quite promising. For the purposes of the book, it sets the stage nicely for the subsequent chapters by highlighting the big picture of expected welfare gains from peace, within a rigorous scientific context, rather than one of advocacy. Estimating the potential economic benefits of internal and international peace is also fundamental in understanding the potential economic incentives which might drive political and business leaders to avoid deadly conflict, and pursue peace.

  • Copyright page

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