IMF Working Papers

Echoes Across Borders: Macroeconomic Spillover Effects of Conflict in Sub-Saharan Africa

Author/Editor:

Hany Abdel-Latif ; Antonio David ; Rasmané Ouedraogo ; Markus Specht

Publication Date:

May 17, 2024

Electronic Access:

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Summary:

This paper quantifies the macroeconomic spillover effects of conflict within sub-Saharan African (SSA) countries using a new Conflict Spillover Index (CSI), which accounts for conflict intensity and distance from conflict-affected countries. Our findings reveal an escalation in conflict spillovers across SSA since 2011, marked by considerable cross-country heterogeneity. Impulse responses show that conflict spillovers shocks significantly and persistently hinder economic growth, while concurrently elevating inflation in the “home” country. Conflict spillover shocks are also associated with increases in (current) government spending and government debt. Furthermore, the international trade transmission channel of spillovers operates mostly through increased imports, while negative effects on FDI winddown over time. Moreover, state-dependent impulse responses underscore the importance of good governance, fiscal space, and foreign aid in attenuating the adverse macroeconomic spillover effects of conflict. The detrimental impact of conflict on output is more severe in environments with weaker governance and limited fiscal space. Government expenditures tend to rise following a spillover shock in contexts of high governmental effectiveness, possibly reflecting the use of policy buffers to respond to shocks. In that context, the papers shed light on important factors to promote resilience in SSA economies.

Series:

Working Paper No. 2024/100

Subject:

Expenditure Financial sector policy and analysis Fiscal policy Fiscal space Foreign aid Public debt Spillovers Total expenditures

Frequency:

regular