What the economics of building and sustaining peace look like in the war-torn country.
Thursday, March 28, 2019 /BY:William Byrd
In recent months there has been a flurry of movement in the Afghan peace process, leading to talk of a “peace dividend” that would boost the country’s economy and incentivize and sustain peace. For example, the November 2018 Geneva international conference on Afghanistan called for donors and development and regional partners to develop a post-settlement economic action plan. But what would a peace dividend look like in war-torn Afghanistan? In the short run, could it help incentivize the insurgency and state actors to agree and adhere to a peace agreement? And in the longer term, could it help sustain peace and lead to a more prosperous and stable Afghanistan?
What is a Peace Dividend?
Although there are varying definitions, the term originally referred to the budgetary savings from lower military spending after the end of a war and the consequent increase in public expenditures on domestic priorities. In the long term, this kind of peace dividend indeed can be significant provided that military spending actually declines and translates into increases in civilian expenditures. Afghanistan incurs extremely high security costs amounting to as much as a quarter of the country’s Gross Domestic Product (GDP), which should decline greatly if there is peace. However, the country’s extremely high aid also would decline at least gradually under a peace scenario, reducing the scope for this kind of peace dividend.
A second, narrower definition is an infusion of aid or other cash inflows accompanying a peace agreement or peace process, intended to reward the participants and/or segments of the wider population. An immediate peace dividend of this kind would signal change and help restore confidence, and consolidating peace requires shifting the incentives of important actors away from violence. At one end of the spectrum, this can involve political pay-offs and distribution of resources to leaders of different armed factions, at the other expenditures and investments aimed at larger segments of the population. However, overly high expectations regarding immediate increases in employment and improvements in living standards are likely to be disappointed, leading to disenchantment and possibly greater risk of relapse into conflict.
A third, broadest definition of the peace dividend is that durable cessation of conflict, accompanied by some level of political stability, can lead to a post-conflict economic boom. This typically represents “catch-up” economic growth after a period of substantially depressed growth during a protracted conflict. A key question is how to sustain a post-conflict growth spurt, which in most countries have not lasted.
The ingredients of a post-conflict economic boom tend to be somewhat similar across countries: 1) a revival of aggregate demand along with improved confidence and a boost in investment; 2) an increase in the labor force with return of refugees, displaced persons, and ex-combatants; and 3) reversal of capital flight. Agriculture typically is a major source of catch-up growth in the aftermath of conflict; rebuilding of destroyed and deteriorated infrastructure leads to a construction boom; and mineral extraction may be a growth driver in countries that are well-endowed.
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