Predation, Taxation, Investment and Violence: Evidence from the Philippines / Eli Berman, Joseph Felter, Ethan Kapstein, Erin Troland.

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Berman, Eli

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w19266.Publication details: Cambridge, Mass. National Bureau of Economic Research 2013.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: This paper explores the relationship between investment and political violence through several possible mechanisms. Investment as a predictor of future violence implies that low private sector investment today provides a robust indicator of high violence tomorrow. "Rent-capture" or predation asserts that investment increases violence by motivating extortion by insurgents. A "hearts and minds" approach links investment to political violence in two possible ways: through an opportunity cost mechanism by which improved economic conditions raise the cost of rebel recruitment; and through a psychological "gratitude" effect which reduces cooperation of noncombatants with rebels. Finally, tax capture implies that government will increase coercive enforcement in an attempt to control areas where increased investment increases tax revenue. We lay out these mechanisms in a framework with strategic interaction between rebels, communities, government and firms within an information-centric or "hearts and minds" counterinsurgency model. We test these mechanisms in the context of the Philippines in the first decade of this century, using information on violent incidents initiated by both rebels and government and new data on industrial building permits, an indicator of economic investment. Increases in investment are positively correlated with both rebel and government initiated violence. In the context of our theory that constitutes unequivocal evidence of predation, is consistent with tax capture, and weighs against predictive investment, opportunity costs or gratitude being a dominant effect.

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Previous	nber w19263 Barriers to Health and the Poverty Trap /	nber w19264 Daily Needs, Income Targets and Labor Supply: Evidence from Kenya /	nber w19265 Unemployment and Business Cycles /	nber w19266 Predation, Taxation, Investment and Violence: Evidence from the Philippines /	nber w19267 The Natural Rate Hypothesis: An idea past its sell-by date /	nber w19268 Evidence for Significant Compression of Morbidity In the Elderly U.S. Population /	nber w19269 Non-Choice Evaluations Predict Behavioral Responses to Changes in Economic Conditions /	Next

August 2013.

This paper explores the relationship between investment and political violence through several possible mechanisms. Investment as a predictor of future violence implies that low private sector investment today provides a robust indicator of high violence tomorrow. "Rent-capture" or predation asserts that investment increases violence by motivating extortion by insurgents. A "hearts and minds" approach links investment to political violence in two possible ways: through an opportunity cost mechanism by which improved economic conditions raise the cost of rebel recruitment; and through a psychological "gratitude" effect which reduces cooperation of noncombatants with rebels. Finally, tax capture implies that government will increase coercive enforcement in an attempt to control areas where increased investment increases tax revenue. We lay out these mechanisms in a framework with strategic interaction between rebels, communities, government and firms within an information-centric or "hearts and minds" counterinsurgency model. We test these mechanisms in the context of the Philippines in the first decade of this century, using information on violent incidents initiated by both rebels and government and new data on industrial building permits, an indicator of economic investment. Increases in investment are positively correlated with both rebel and government initiated violence. In the context of our theory that constitutes unequivocal evidence of predation, is consistent with tax capture, and weighs against predictive investment, opportunity costs or gratitude being a dominant effect.