Conflicts and Growth: The R&D Channel

IMF Working Papers, May 10, 2024

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Violent conflicts are typically associated with a long-lasting drag on economic output.
The study builds causality in the conflict–growth nexus by exploiting within-country variation across industries’ technological intensity.
It identifies a channel through which conflicts can impact growth: by hindering R&D activities.
Analysis is based on industry-level data from two-digit manufacturing industries for a large sample of countries over the last four decades.
The results show that conflicts lead to a decline in labor productivity growth, particularly in industries with higher technological intensity.
The additional labor productivity loss in high-tech industries in the years of conflicts does not seem to be offset in the post-conflict period.

Exploits within-country variation across industries’ technological intensity to build causal inference.
Uses industry-level data from two-digit manufacturing industries.
Covers a large sample of countries over the last four decades.

Conflicts lead to a decline in labor productivity growth.
The decline is particularly pronounced in industries with higher technological intensity.
The estimated magnitude of the differential effect of conflicts on labor productivity growth in high-tech industries is large.
The additional labor productivity loss in high-tech industries during conflict years is not offset in the post-conflict period.
Findings offer insight into observed patterns of durable declines in income in the aftermath of conflicts, given the role of technological progress and innovation in long-term economic growth.

Protecting R&D activities and high-tech industries during conflicts may be critical to mitigating long-term output losses.
Policies that facilitate the preservation or rapid restoration of innovation capacity post-conflict could help prevent durable declines in income tied to lost technological progress.
Targeted support for technologically intensive sectors in post-conflict recovery strategies may be warranted to offset persistent productivity losses.

Keywords: Conflict, economic growth and development, high-tech, innovation, R&D, war

Conflicts and Growth: The R&D Channel — Can Sever, May 10, 2024.