Essays on Development Challenges of Low Income Countries: Evidence from Conflict, Pest and Credit

This thesis discusses three distinct economic development challenges in low income countries, that stand independently. Chapter 1 looks at conflict dynamics of non-state armed groups in the context of peace agreement negotiations in Africa. Chapter 2 quantifies an environmental shock in Ethiopia and, Chapter 3 considers financialisa-tion and informality in India.
In the first chapter “War and Peace: Measuring conflict dynamics in the presence of peace accords in Africa”, I look at the behaviour of signatory armed groups during periods of peace negotiations. In particular, it assesses peace negotiations and their role for signatory, non-state military actors. It uses original matched data from ACLED and PA-X on actor-level conflict events and peace agreement signatures, covering 43 countries in Africa during 1997 and 2019. Exploiting variation in the timing of signing across actors, I employ a two-step difference-in-difference design where panel event study estimates of 24 months ex post are compared to the ones 24 months ex ante accounting for differential trend of signatory actors. The signing of an agreement is associated with large reductions in conflict prevalence and intensity in areas of previous fighting by 53% and 31% six months after the signing, respectively. In contrast, the peace agreement signature had no measurable impact on the violent activity of the signatory groups in new locations of activity ex post.
In the second chapter “Gone with the wind: the welfare effect of desert locust out-breaks”, we measure the impact of desert locusts, a plants pest whose spread is caused by environmental conditions. In particular, we quantify the size of the productivity and welfare loss caused by a desert locust outbreak that hit Ethiopia in 2014. Exploit-ing the passive flyer nature of locusts, we identify the causal effect of locust swarms on agricultural output and children’s nutritional status by modelling their movements based on wind speed and direction to distinguish areas in which they likely land (affected areas). The results show that agricultural output is significantly lower in areas hit by the shock compared to areas that are not affected. On average, children nutritional status is not negatively impacted by the shock.This thesis discusses three distinct economic development challenges in low income countries, that stand independently. Chapter 1 looks at conflict dynamics of non-state armed groups in the context of peace agreement negotiations in Africa. Chapter 2 quantifies an environmental shock in Ethiopia and, Chapter 3 considers financialisation and informality in India.
In the first chapter “War and Peace: Measuring conflict dynamics in the presence of peace accords in Africa”, I look at the behaviour of signatory armed groups during periods of peace negotiations. In particular, it assesses peace negotiations and their role for signatory, non-state military actors. It uses original matched data from ACLED and PA-X on actor-level conflict events and peace agreement signatures, covering 43 countries in Africa during 1997 and 2019. Exploiting variation in the timing of signing across actors, I employ a two-step difference-in-difference design where panel event study estimates of 24 months ex post are compared to the ones 24 months ex ante accounting for differential trend of signatory actors. The signing of an agreement is associated with large reductions in conflict prevalence and intensity in areas of previous fighting by 53% and 31% six months after the signing, respectively. In contrast, the peace agreement signature had no measurable impact on the violent activity of the signatory groups in new locations of activity ex post.
In the second chapter “Gone with the wind: the welfare effect of desert locust out-breaks”, we measure the impact of desert locusts, a plants pest whose spread is caused by environmental conditions. In particular, we quantify the size of the productivity and welfare loss caused by a desert locust outbreak that hit Ethiopia in 2014. Exploiting the passive flyer nature of locusts, we identify the causal effect of locust swarms on agricultural output and children’s nutritional status by modelling their movements based on wind speed and direction to distinguish areas in which they likely land (affected areas). The results show that agricultural output is significantly lower in areas hit by the shock compared to areas that are not affected. On average, children nutritional status is not negatively impacted by the shock.
The third chapter “Financial deepening and the informal economy: Evidence from local credit cycles in India” analyses the role of formal credit on the size and dynamics of the shadow economy in India, an economy with a large informal sector and large cross-sectional and time heterogeneity in bank credit availability. We use district-level bank lending data from the Reserve Bank of India from 1997 to 2018 and measure light emissions observed from outer space at night time to proxy for economic activity. The identification strategy relies on the importance of gold as a collateral commodity for credit in India. We find that gold price fluctuations have a significantly expanding effect on credit supply. Credit supply expansions lead to growth of formal GDP (with a structural elasticity between 0.1 and 0.2). According to our estimates, resources are re-allocated from the informal to the formal sector. In the short run, the contraction of the informal sector is so strong that economic output as a whole tends to fall. The economy reaps the benefits of formalization after credit becomes more easily available only over the course of 3-5 years.