Growth of the Modern Global Economy: Market Optimization Versus Counter-Cyclical Regulation
Religion, ethnicity, and politics are typical explanatory variables of violent conflicts. From an economic point of view, economic growth reduces the risk of civil war, yet the economic determinants of conflict have been little studied. In this article, we empirically study the impact of regional macroeconomic conditions on the number of violent conflicts in Indonesia, a country with potential risks of communal conflict because of the plurality of its society. We use panel data consisting of observations on 16 Indonesian regions from 2004 to 2013 to assess the impact of economic factors on conflict, reevaluating the religion effect using dynamic models (SYS GMM estimator). Our findings suggest that only the inflation rate predicts the conflict growth rate. Economic growth, economic development, poverty, and even religion, do not significantly affect the number of regional conflicts.
We investigate the impact of inequality in wealth distribution on the joint dynamics of conflict intensity and pro-growth institutions in the historical perspective. We build a two-sector endogenous growth model with political conflict between the traditional elite and the emerging class of capitalists during the transition from stagnation to growth. First, our model attempts to explain different moments of industrialization worldwide. Second, we capture various paths of conflict intensity: hump-shaped path, almost absent conflict, and other. We show that the distribution of wealth has a non-monotonous impact on the intensity of conflict and institutions supporting industrialization. Namely, higher inequality in land distribution may be detrimental to industrialization, but may lower conflict intensity. In contrast, higher inequality in capital holdings may be growth-enhancing.