The Economic Costs of Conflict: A Case Study of the Basque Country

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  • Alberto Abadie
    John F. Kennedy School of Government, Harvard University, 79 John F. Kennedy Street, Cambridge, MA 02138.
  • Javier Gardeazabal
    Departamento Fundamentos del Análisis Económico II, Universidad del País Vasco, Avenida Lehendakari Aguirre 83, 48015 Bilbao, Spain.

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<jats:p> This article investigates the economic effects of conflict, using the terrorist conflict in the Basque Country as a case study. We find that, after the outbreak of terrorism in the late 1960's, per capita GDP in the Basque Country declined about 10 percentage points relative to a synthetic control region without terrorism. In addition, we use the 1998–1999 truce as a natural experiment. We find that stocks of firms with a significant part of their business in the Basque Country showed a positive relative performance when truce became credible, and a negative relative performance at the end of the cease-fire. </jats:p>

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