Does conflict have negative consequences on economic growth in South Asia?
Keywords:
ARDL bounds test, conflict, military expenditure, per capita GDP, South AsiaAbstract
The direct and indirect causes of armed conflict in South Asia is perhaps the single most important reason for increasing military expenditure. It is also a significant threat to the growth of national output in the region. This study examines the impact of conflict on economic growth in conflict-affected South Asian countries from 1980-2014 by employing sufficient determinants, the Solow growth model and Autoregressive Distributed Lag (ARDL) bounds test approach to cointegration. Since military expenditure and military participation have increased simultaneously with internal and external conflict, this study used military expenditure per warring population as a proxy for conflict. Apart from mixed conclusions in the literature, the results of this study suggest that conflict contributes significantly to decreasing per capita GDP in the short- and long-run across South Asia. The findings indicate that the effect is high in the long-run and is most severe in Pakistan, Sri Lanka and India since 85% of conflict in South Asia occurred in these three countries. The study recommends that policymakers and governments should adopt constructive policies to prevent and control internal and external conflicts. Ending conflict undoubtedly leads to minimising the cost of conflict and supports ways of enhancing output in South Asia.
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