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Biblioteca Diamonds are forever, wars are not: is conflict bad for private firms?

Diamonds are forever, wars are not: is conflict bad for private firms?

Diamonds are forever, wars are not: is conflict bad for private firms?

Resource information

Date of publication
Diciembre 2003
Resource Language
ISBN / Resource ID
eldis:A18145

Using microeconomic data for Angola, this paper studies the relationship between civil war and private investment in a poor, resource abundant country. In order to do so, the paper focuses on diamond mining sector and conducts an event study on the sudden end of the conflict, marked by the death of the rebel movement leader in 2002.Findings of the study include:the stock market perceived this event as ‘bad news’ rather than ‘good news’ for companies holding concessions in Angola, as their abnormal returns declined by 4 percentage points this effect is sizeable and statistically significant, and is not likely to arise from unmeasured shocks to the diamond industry occurring at the same time, as the event had no effect on a control portfolio of otherwise similar diamond mining companies this finding is also affirmed by other events and by the adoption of alternative methodologies: using nonparametric techniques with daily data on the intensity of conflict, finds that moderate level of violence increased the abnormal returns of the Angolan portfolio.The paper points out that results should be interpreted in the light of the widespread rent seeking in the Angolan mineral industry. The occupation of parts of the territory by the rebels and the instability created by civil war may limit the government’s ability to extract rents as well as the threat of entry of new firms, and thus be beneficial for incumbent companies.

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Authors and Publishers

Author(s), editor(s), contributor(s)

M. Guidolin
E. La Ferrara

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