Research / BFI Working PaperMar 29, 2021

Uncertainty, Peace, and Investment: Evidence from Credit Microdata in Colombia

Nicolás de Roux, Luis Martínez

We study the causal effect of the formal cessation of conflict on investment. Our difference-in-difference strategy combines the 2016 peace agreement between the Colombian government and the FARC insurgency with pre-existing differences in FARC exposure across municipali-ties. Using administrative data from a large bank serving agricultural producers, we document a sizable increase in business credit in FARC municipalities after the peace deal is finalized. Higher loan applications for long-term investments drive this increase, without any change in supply-side factors. Investment only increases in municipalities located close to markets and does not increase during the peace negotiations, despite a meaningful decline in violence. This indicates that uncertainty is a major deterrent for investment and that peace is complementary to market access. There is no change in loan misuse or delinquency, which suggests that the new loans correspond to profitable projects. Higher night-time luminosity provides further evidence of an economic peace dividend.

More Research From These Scholars

BFI Working Paper Apr 20, 2021

A Glimpse of Freedom: Allied Occupation and Political Resistance in East Germany

Luis Martínez, Jonas Jessen, Guo Xu
Topics:  Uncategorized
BFI Working Paper Jul 7, 2021

How Much Should We Trust the Dictator’s GDP Growth Estimates?

Luis Martínez
Topics:  Uncategorized
BFI Working Paper Sep 11, 2023

The Intergenerational Transmission of Higher Education: Evidence from the 1973 Coup in Chile

Maria Angélica Bautista, Felipe González, Luis Martínez, Pablo Muñoz, Mounu Prem
Topics:  Development Economics