POVERTY THE WORLD BANK REDUCTION AND ECONOMIC MANAGEMENT NETWORK (PREM) Economic Premise SEPTEMBER 2010 · Number 31 JUNE 2010 · Number 18 Conflict and Development--Lessons from South Asia 56610 Trade and the Competitiveness Agenda Ejaz Ghani and Lakshmi Iyer José Guilherme Reis and Thomas Farole South Asia is the second most violent place on earth after Iraq. Conflicts in Afghanistan and Pakistan have attracted global attention. Parts of India, Sri Lanka, and Nepal have experienced long-running conflict. Conflicts result in death, misery, social trauma, destruction of infrastructure, and have huge spillover effects. What is conflict? Where is it concentrated? Is conflict a problem for development, or a failure of development? What The global economic should policy makers do? crisis has forced a major rethinking of the respective roles of governments and markets in the processes of trade and growth. Indeed, industrial policy seems to be back in fashion--or, at least, talking about it is. to focus on conflict against the a return to it has greater im- But a renewed "activism" by government in the trade and growth agenda need not mean state, becauseold-style What Is Conflict? policies of import substitution and "picking winners." Instead, it may mean a stability of the statecompetitiveness byim- plications for the stronger focus on itself, and therefore unlocking clash between two opposing groups, and can be Conflict is athe constraints to private sector­led growth. This note discusses the renewed role of government in trade pacts states' abilities to implement developmental policy. The external or internal to the country. An example of external and growth policy from the competitiveness angle, and it suggests some priorities for the new competitiveness agenda. impact of people-to-people conflict is less severe compared to clash is state-to-state conflict (interstate war). This kind of con- conflict against the state. flict has declined. But internal conflict is on the rise. Indeed, These two categories of conflict make it easier to explore po- internal conflicts have resulted in three times as many deaths as tential relationships between conflict and development. Such external conflicts, or interstate wars, since World War II Export-Led Growth, the Crisis, and the End (Fearon and Laitin 2003). an of the crisis on the policy environment regarding trade pacts approach is also better aligned with the economic literature of an Era on institutions and economic growth (Acemoglu, Johnson, and and growth were becoming more apparent. Indeed, in addi- Internal conflict is a loose term. It can be classified into two broad categories (Ghani and Iyer 2010). The first category is Robinson 2001). Of the different types of institutions trade tion to raising concerns over the global commitment towhich The dramatic expansion in global trade over recent decades conflict against the state. Examples of this are civil war, separat- have been identified has also led to development--market- liberalization, the crisisas important to some serious rethink- creating institutions, market-regulating institutions, market has contributed significantly to diversification, growth, ist movements, and suicide bombings. Suicide bombings areand ing of some of the conventional wisdom regarding the poverty reduction in many developing countries. This period substituting institutions--the type that has received relatively growth agenda--the most important result of which is the an extreme manifestation of conflict carried out by a relatively little attention is that of conflict management or market-legiti- of rapid export growth has been enabled by the desta- organized group of nonstate actors, and their goal is two critical likelihood that governments will play a much more activist structural changes in global trade: (1) the vertical and spatial bilization of the state; all such incidents will be referred to here mizing institutions. Yet There stability principal reasons role in the coming years. politicalare threeis a prerequisite for as terrorism. The of manufacturing into highly conflict. fragmentation second category is people-to-people integrated implementing changes to any of the other types of involved in why governments are likely to be more actively institutions. Examples of this include conflicts and (2) the rise of social "global production networks," between ethnic and services Even in and trade policy in the coming even industrial a best-case scenario, the presence ofyears.low-level con- trade and the growth of "offshoring." Both of these, in turn, First, the crisis has on the kinds of policies governments can flict places constraintsundone faith in markets and discred- groups, localized land conflicts, religious riots, homicides, do- implement. approaches that rely simply on trade policy were violence, common violence, or other crimes. Ethnic and mesticmade possible by major technological revolutions; and ited laissez-faire they were supported by multilateral trade policy reforms religious violence stand out in people-to-people conflict (Stew- liberalization. Instead, governments and local markets have Is Conflict a Problem for Development, or a and broad liberalizations in domestic trade and investment art 2010; Varshney 2002). been "rediscovered." In this sense, the demand for activist Failure of Development? environments worldwide. conflicts have evolved differently The two types of internal government is likely to go well beyond financial markets and The Asia. economic crisis came has declined: the middle in SouthglobalPeople-to-people conflictcrashing into in India, Figure 1 and the internal conflict rate and real per in which regulation, plotsit will affect the policy environment capita in- of this long-running export-led growth party during 2008 clashes between Hindus and Muslims have not increased over trade and industrial strategies are designed. axis reports the come for a large group of countries. The vertical andpast decade, and homicide quarter of 2007 and the second the 2009. Between the last rates have declined substantial- Second, the crisis has in terrorist the critical importance number of people killedhighlighted incidents (normalized by quarter of 2009, global trade contracted Researchers tend ly. But conflict against the state has increased. by 36 percent. But of diversificationa(of sectors, products, and trading partners) population) as measure of conflict rate (it excludes state-to- as the recovery started to strengthen in 2010 (at least until in reducing the risks of growth volatility. The recent era of the clouds began to form over Europe), the longer-term im- globalization contributed to substantial specialization of 1 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise 1 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise Figure 1. Conflict and Violence (1998­2004) 4 Angola 3 Rwanda Nepal Algeria India Russian Federation log (number of deaths per capita) Sri Lanka Israel Sierra Leone Kenya Burundi Philippines Colombia Guinea Spain Uganda Pakistan Morocco Honduras 2 Indonesia Nigeria Uzbekistan Congo, Rep. of Namibia Turkey Saudi Arabia Bangladesh Georgia Switzerland Sudan Egypt, Arab Rep. of Macedonia Tanzania Liberia Lebanon Peru Finland Cambodia Yemen, Rep. of Thailand 1 United States Tajikistan Senegal Syrian Arab Rep. Haiti Congo, Dem. Rep. of Iran, Islamic Rep. of Germany Mexico Vietnam Taiwan Paraguay Serbia and Ethiopia Montenegro United Kingdom 0 6 7 8 9 10 11 GDP per capita, PPP (in logs) Source: LaFree and Dugan (2008). Note: The figure takes the arithmetic mean for fatalities and income per capita for the period 1998­2004. Fatality is the number of total confirmed fatalities for the incident. The number includes all victims and attackers who died as a direct result of the incident. state conflict and common crime). The horizontal axis plots violence than states that had more police and less welfare (Jus- real GDP per capita. The downward sloping line suggests that tino 2009). countries that have low per capita income have a higher conflict If cross-country data suggest an inverse association between rate. This is consistent with other findings in the literature that conflict incidents and per capita income, would subnational report higher conflict rates in low-income countries (Collier et data also show that conflict rates are higher in lagging regions al. 2003). compared to leading regions within countries (lagging regions However, the relationship between conflict and per capita have lower per capita income compared to national average)? income is not very tight. High income can't guarantee peace Indeed, this is exactly the situation in South Asia. and stability. There are many countries that are outliers. It is Figure 2 shows that in India, Bangladesh, Nepal, Pakistan, quite striking that many South Asian countries are outliers: In- and Sri Lanka, conflict is concentrated in the lagging regions. dia, Pakistan, Sri Lanka, and Nepal all have much higher con- The lagging regions of Pakistan (Balochistan, Federally Admin- flict rates than expected for their stage of development. istered Tribal Areas [FATA], and North-West Frontier Province One cannot infer causality from figure 1. Conflict may be [NWFP]), India (Maoist insurgency in Bihar, Chhattisgarh, contributing to low per capita income, or low income may be Jharkhand, and Orissa), and Sri Lanka (northern province), contributing to conflict. The poverty-conflict link is a two-way have high conflict rates. Nepal appears to be an exception in relationship. A better understanding of causality has big poli- terms of showing greater conflict in leading regions (figure 3). cy implications. If it is conflict that holds back growth, then The differences in conflict intensity across leading and lag- policy makers should focus on controlling conflict, perhaps by ging regions are statistically significant, as shown by formal t- increasing military and police interventions to reduce con- tests (table 1). In South Asia as a whole, lagging regions experi- flict. But if it is low income and high poverty that cause con- enced more than three times the number of terrorist incidents flict, then the focus should be on direct policy interventions to per capita, compared with leading regions, and almost twice as reduce poverty and human misery. In India, there is some evi- many deaths per capita in such incidents (see table 1, panel A, dence that states that had more welfare and less police had less first two rows). This is a large difference and remains statisti- 2 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise Figure 2. South Asia Conflict Intensity Map Low Medium Afghanistan High No data N.W.F.P. Himachal Punjab Pradesh Far Punjab Western Uttarakhand Pakistan Haryana Balochistan Delhi Mid Nepal Sikkim Bangladesh Western Western Eastern Bhutan Uttar Central Rajasthan Pradesh Sindh Assam Nagaland Bihar Meghalaya Rajshahi Sylhet Manipur Dhaka Gujarat India Jharkhand West Tripura Madhya Pradesh BengalKhulnaBarisal Mizoram Chhattisgarh Chittagong Chittagong Orissa Maharashtra Andhra Pradesh Goa Karnataka Tamil Kerala Nadu Northern Northern North North Central North Western Eastern Western Sri Lanka Central Uva Sabaragamuwa Sabaragamuwa This map was produced by the Map Design Unit Southern Southern of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part Maldives of The World Bank Group, any judgment on the legal status of any territory, or any IBRD 37114 endorsement or acceptance of such boundaries. APRIL 2010 Source: Conflict categories created by authors based on data from the RAND-MIPT Terrorism Incident Database for the period 1998­2007. cally significant even after controlling for changes that affected What Explains Higher Concentration of Con- the whole region in any given year. flict in Poor Regions? Some of this difference is attributable to cross-country dif- ferences: Afghanistan and Nepal are both much poorer than That conflict is higher in lagging regions is consistent with the rest of South Asia, and have suffered high levels of conflict. But, cross-country literature on the incidence of civil war, which consistent with the results in figure 3, the difference between shows that poor countries are at greater risk of internal conflict lagging and leading regions is present within individual coun- (Collier and Hoeffler 2004); Fearon and Laitin 2003). Time- tries as well: lagging regions within Bangladesh, India, Pakistan, series studies of conflict find that poor economic circumstanc- and Sri Lanka have more than twice the levels of per capita con- es are more likely to result in conflict: Miguel, Satyanath, and flict than leading regions within the same countries. Sergenti (2004) find that civil war is more likely to begin in Af- 3 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise Figure 3. Comparing Terrorist Incidents across Leading and Lagging Regions within Countries 2.5 terrorist incidents per capita 2.0 1.5 1.0 0.5 0 Bangladesh India Pakistan Sri Lanka Nepal leading regions lagging regions Source: RAND-MIPT Terrorism Incident Database. Note: In the interests of showing the within country details, the per capita figures are per million population for Bangladesh and India, and per 100,000 for Pakistan, Sri Lanka, and Nepal. The latter three countries experienced significantly higher levels of overall conflict per capita over this period. The MIPT data for Nepal are not of high quality. Table 1. Are Conflict Differences between Leading and Lagging Regions Statistically Significant? Leading Lagging Regression Variable Place regions regions Difference difference Panel A: MIPT data, 1998­2007 # terrorist incidents per South Asia 0.399 1.195 0.796 0.796*** million population # fatalities per million South Asia 0.521 1.738 1.217 1.217** population # terrorist incidents per Bangladesh 0.115 0.105 -0.011 million population India 0.165 0.363 0.198 Nepal 2.056 1.511 -0.545 Pakistan 0.249 2.509 2.260 Sri Lanka 0.858 2.495 1.637 Panel B: GTD2 data, 1998­2004 # terrorist incidents per South Asia 0.269 0.559 0.290 0.290** million population # fatalities per million South Asia 4.045 11.963 7.918 7.918** population # terrorist incidents per Bangladesh 0.096 0.050 0.047 million population India 0.159 0.129 -0.030 Nepal 0.864 0.698 -0.166 Pakistan 0.204 0.254 0.050 Sri Lanka 1.039 1.641 0.602 Source: LaFree and Dugan (2008); RAND-MIPT Terrorism Incident Database. Note: Regression differences are calculated by regressing the conflict intensity on a dummy for lagging region and year fixed effects. GTD2 = Global Terrorism Database II. *** Represents significance at 1 percent, ** represents significance at 5 percent, and * represents significance at 10 percent. 4 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise rican countries in years following poor rainfall; Hidalgo et al. head-count ratio measures the percentage of population in a (2008) find that poor rainfall is associated with an increased given area whose consumption is below the poverty line for that incidence of land invasions in Brazil; and Dube and Vargas region. The head-count ratio here has been calculated with re- (2009) document a robust association between reduced coffee spect to national poverty lines for the different countries. prices and the incidence of terrorism in Columbia. Do and Iyer Does poverty incidence match with the incidence of con- (2010) find similar results in an analysis of conflict intensity flict? The analysis does show a higher incidence of conflict in across the districts of Nepal. poor and landlocked regions. Furthermore, there is a close rela- Figure 4 shows the distribution of poverty rates across the tionship between higher poverty rates and greater conflict. One regions of South Asia, measured by the head-count ratio. The can easily see that western Pakistan, Afghanistan, Nepal, and Figure 4. Map of Poverty Head-Count Ratio in South Asia Afghanistan N.W.F.P. 8%­23% 23.1%­38% 38.1%­52% Himachal Pradesh No data Punjab Far Punjab Western Uttarakhand Pakistan Haryana Balochistan Mid Western NEPAL Western Rajasthan Uttar Central Eastern Bhutan Sindh Pradesh Assam Bihar Rajshahi Sylhet Gujarat India Jharkhand Dhaka West Madhya Pradesh Bengal Khulna Barisal Chhattisgarh Chittagong Chittagong Orissa Maharashtra Bangladesh Andhra Pradesh Karnataka Tamil Kerala Kerala Nadu North North Central Sri North Western North Western Lanka Western Central Uva Sabaragamuwa Sabaragamuwa This map was produced by the Map Design Unit Southern Southern of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part Maldives of The World Bank Group, any judgment on the legal status of any territory, or any IBRD 37361 endorsement or acceptance of such boundaries. FEBRUARY 2010 Source: Ghani (2010). 5 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise some parts of eastern India have both high levels of poverty and ment is not able to deal with the rebels effectively. In fact, sepa- high levels of conflict. ratist or ethnic conflicts are often driven by the perception of a This relationship is visible in figure 5, where we see higher specific region or group being discriminated against by the levels of conflict in poorer regions of South Asia. This relation- state. ship is not uniform within each country; in particular, it is The cross-country literature on civil wars has documented much less strong across regions of Bangladesh. Indeed, this is several other features that appear to be important. For instance, not a tight relationship. Poverty figures may reflect the effect of Fearon and Laitin (2003) show that geographic conditions that any conflict in that region as well, and thus these figures cannot favor insurgency, such as the presence of forest cover, are signifi- be used to make a causal statement. Furthermore, the existence cantly associated with the incidence of conflict. How far does of conflict complicates the collection of detailed data. In par- this matter for the South Asian context? States in India that ticular, poverty figures are not available for the northern and have a higher forest cover have higher conflict intensity (see fig- eastern provinces of Sri Lanka, which had the highest levels of ure 6). This is consistent with numerous accounts of Naxalites conflict in the whole of South Asia. using forest cover to hide effectively from law enforcement forc- Several different interpretations can be made for any ob- es. Data from Sri Lanka and Nepal show a similar relationship. served relationship with poverty. It might be easier for rebels to In addition to economic and geographic circumstances, so- recruit people to their cause in poorer areas, because their op- cial divisions are often cited as a driver of conflict. For instance, portunity cost of conflict is relatively low. This "opportunity the separatist movement in Sri Lanka began with the demands cost" hypothesis means that the relationship between poverty of ethnic Tamils for greater autonomy. Similarly, the Maoist and conflict will be different for an ethnically based or separat- rebels in Nepal often claim to be fighting on behalf of marginal- ist conflict, because recruitment will be made on the basis of ized sections of society, such as members of the lower castes. ethnicity or regional affiliation, rather than the lowest cost of India's northeastern states, which are the scene of long-running recruitment. However, another potential interpretation is that separatist movements, are socially and ethnically different from poorer regions have poorer state capacity, and hence the govern- the majority of the states in India. Figure 5. Relationship between Conflict Intensity and Poverty Rates 20 number of terrorist incidents per million population NMidW 15 NFarW NWes NEas SNC PNWFP 10 SWes Asm PSin 5 Ctg BKhu SNW SUva AP PPun Jha BDha BSyl SCen BRsh PUN HP SSou Mah BChi Bih Ori BBar HAR KER Guj RAJ TN WB MP KAR Utc 0 UP SSab 10 20 30 40 50 poverty rate 2005 incidents per million population fitted values Source: RAND-MIPT Terrorism Incident Database. Poverty numbers are computed by World Bank staff from individual country data sources. Note: MIPT data are at region level. Figure excludes Balochistan and Central Province in Nepal, which are large outliers. Data on poverty levels are not available for northern and eastern provinces of Sri Lanka. 6 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise Figure 6. Forest Cover and Conflict Intensity in South Asia 30 M an number of terrorist incidents per million population 20 T ri 10 Asm Nag Jh a Del C tg M iz Har AP M eg UP G uj HP O ri Ker U tc G oa 0 P u nR a jB ih d g Kar A rP C W B M a hT N MP S ik 0 20 40 60 80 percentage of area under forest over #incidents per m illion population fitted values Source: RAND-MIPT Terrorism Incident Database on conflict for Indian states. Conflicts can be triggered by low economic growth (a lower Policy makers in South Asia have tried various policies to re- economic opportunity cost of rebellion against the state in poor duce conflict. The most common approach is to use police forc- areas), unequal distribution in gains from development, and es to establish law and order in the affected areas. The police political marginalization. Or conflict can result from shocks forces in South Asian countries, however, tend to be under- such as natural calamities or commodity price shocks. The lag- staffed and underequipped. In cases in which police forces are ging regions of South Asia suffer from both types of problems-- insufficient, the armed forces are called in to deal with the insur- low economic growth and higher vulnerability to natural ca- gency. In most cases, this has not been a successful strategy. Even lamities (Ghani 2010; Ahmed, Kalegama, and Ghani 2010). when successful in defeating the insurgents, as in Sri Lanka, the The consequences of conflict on development are more se- human cost associated with military operations is very high. vere in lagging regions due to weak institutions, poor geogra- A different approach to dealing with insurgencies is to con- phy, and weak integration with global markets. These are also duct negotiations and sign peace agreements with the insur- the characteristics that limit economic growth in lagging re- gents. To be effective, this approach needs two requirements: gions. Leading regions also suffer from conflict but are better (1) the government must conduct coordinated negotiations able to contain and manage them because of administrative and fulfill at least some of the insurgents' demands; and (2) the and economic dynamism (which includes job creation capacity insurgent group must be genuinely interested in joining the po- and effective safety net programs). litical mainstream. This approach has been tried in some areas of South Asia. For instance, the Indian government has signed What Should Policy Makers Do to Reduce peace deals with several separatist groups in the northeastern Conflict? states, granting them a higher degree of local autonomy in some A speech given by the Prime Minister of India, Dr. Manmohan cases. Similarly, negotiations with some Tamil groups in Sri Singh, to a conference on Internal Security and Law and Order Lanka, such as the EPRLF, have resulted in their integration in 2005, sums up the story of conflict and development: into mainstream politics. Whatever be the cause, it is difficult to deny that extremism has Complementary to the security-based solution is an eco- huge societal costs. Investments are unlikely to fructify, em- nomic solution, whereby the government expands welfare pro- ployment is not likely to grow and educational facilities may be grams and reduces poverty in the conflict-affected areas to un- impaired...the threat of Naxalism is geographically spread out dercut the support for the insurgency. This approach is to the more backward regions and districts of our country. consistent with economic backwardness as a cause of conflict. Reducing conflict is a prerequisite to political stability, This approach has been tried in some conflicts in South Asia, which, in turn, is the prerequisite for implementing pro-growth but it has failed because of poor economic policy selection and policies. Even in a best-case scenario, the presence of low-level poor implementation in conflict regions. conflict constrains the policies governments can implement to Policy choices and their implementation are critical in pre- promote growth. venting an escalation of conflict and in postconflict reconstruc- 7 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise tion. Economic policies should be geared not just to maximize About the Authors growth, which would take time, but also to address the distri- Ejaz Ghani is economic advisor at the World Bank. Lakshmi Iyer butional or political factors that led to the conflict. Policy choic- is associate professor at Harvard Business School. A summary es must be structured to reduce real or perceived inequities. of this article appeared in the World Bank Ending Poverty in Aid agencies should work through the existing government in- South Asia Blog and VOX EU. The views expressed here are stitutions, be practical to create jobs quickly, and in most cases, those of the authors and not of World Bank or Harvard Busi- work on short-term economic goals first and address medium- ness School. and longer-term efficiency considerations later. This approach calls for humanitarian treatment for conflict-affected people, References closure of refugee camps, and reintegration of refugees within Acemoglu, Daron, Simon Johnson, and James A. Robinson. 2001. "The Colo- society. nial Origins of Comparative Development: An Empirical Investigation." American Economic Review 91 (5): 1369­1401. Cross-border cooperation between countries should be an Ahmed, Sadiq, Saman Kalegama, and Ejaz Ghani, eds. 2010. Promoting Eco- integral part of any strategy to reduce conflict. Many of the in- nomic Cooperation in South Asia: Beyond SAFTA. New Delhi, India: SAGE ternal conflicts in South Asia have cross-border dimensions. Publications. Collier, Paul, V. L. Elliott, Havard Hegre, et al. 2003. Breaking the Conflict Trap: The Taliban in Afghanistan obtain significant support from Civil War and Development Policy. Washington, DC: World Bank and Ox- Pakistan's border areas. The Maoists in Nepal formed close ford University Press. links with the Maoist movements in India. Many separatist Collier, Paul, and Anke Hoeffler. 2004. "Greed and Grievance in Civil War." Oxford Economic Papers 56: 563­95. groups in India's northeastern states had training camps and Do, Quy-Toan, and Lakshmi Iyer. Forthcoming. "Geography, Poverty and Con- cells in neighboring countries such as Bangladesh and Bhutan. flict in Nepal." Journal of Peace Research. Fearon, James, and David Laitin. 2003. "Ethnicity, Insurgency, and Civil War." The Liberation Tigers of Tamil Eelam (LTTE) and other Tamil American Political Science Review 97 75­90. separatist groups in Sri Lanka have traditionally enjoyed sup- Ghani, Ejaz, ed. 2010. The Poor Half Billion in South Asia: What Is Holding Back port from the Tamil diaspora in India and other countries. In Lagging Regions? Oxford University Press India, http://www.oup.co.in/cat- egory.php?cat_id=54. such a context, regional cross-border cooperation is an essential Ghani, Ejaz, and Sadiq Ahmed, eds. 2009. Accelerating Growth and Job Cre- part of any counterinsurgency strategy. Considerable potential ation in South Asia. Oxford University Press, India. exists for regional cooperation in reducing conflict, but this has Ghani, Ejaz, and Lakshmi Iyer. 2010. "Conflict and Development: Lessons from South Asia." VOX EU, March 23, http://www.voxeu.org/index. been an underutilized strategy in combating terrorism in php?q=node/4794. South Asia. Hidalgo, F. Daniel, Suresh Naidu, Simeon Nichter, and Neal Richardson. Forth- South Asian governments have taken a variety of different coming. "Occupational Choices: Economic Determinants of Land Inva- sions." Review of Economics and Statistics. approaches to counter terrorism. Reviewing these approaches Justino, Patricia. 2009. "The Impact of Armed Civil Conflict on Household in the South Asian and global context, it appears that the armed Welfare and Policy Responses." Research Working Papers 12, MICRO- forces or local militias have not been overly effective in combat- CON--A Micro Level Analysis of Violent Conflict. LaFree, G., and L. Dugan. 2008. Global Terrorism Database II, 1998­2004. ing terrorism. Strengthening police forces or conducting nego- Study #22600, Interuniversity Consortium for Political and Social Re- tiations to induce insurgents to join the political mainstream search. appear to be more effective approaches. Regional cooperation Miguel, Edward, Shanker Satyanath, and Ernest Sergenti. 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach." Journal initiatives, which have been underutilized so far, are likely to be of Political Economy 112 (4): 725­53. important in countering terrorism. The challenge is to find the Stewart, Frances, ed. 2010. Horizontal Inequalities and Conflict: Understanding Group Violence in Multiethnic Societies. Palgrave Macmillan, http://us.mac- right combination of these different approaches toward coun- millan.com/Palgrave.aspx. tering conflict, as well as the optimal economic policies to be Varshney, Ashutosh. 2002. Ethnic Conflict and Civic Life: Hindus and Muslims adopted in postconflict environments. in India, First Edition. New Haven and London: Yale University Press. The Economic Premise note series is intended to summarize good practices and key policy findings on topics related to economic policy. They are produced by the Poverty Reduction and Economic Management (PREM) Network Vice-Presidency of the World Bank. The views expressed here are those of the authors and do not necessarily reflect those of the World Bank. The notes are available at: www.worldbank.org/economicpremise. 8 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise