War and development in Mozambique

Abstract

The aim of this paper is to analyse some economic mechanisms operating in times of civil war. The effects of civil war on the key economic indicators output, consumption, welfare, capital, transaction efficiency, uncertainty, fiscal deficit and debt are considered for the case of Mozambique, 1980-94. Finally, the paper outlines economic policy implications for a government at war and for donors supporting a war or post-war economy. The evidence suggests that, while capital destruction is the most obvious cost of conflict, the long-term development potential of a war economy is more severely damaged by increases in the transaction inefficiency, uncertainty, fiscal deficit and debt. Economic policies aimed at generating a post-war peace-dividend can be initiated during the war already. Donor-government partnerships can support effective policies and may even help end the war early. Increased government and aid spending and foreign debt cancellation aimed at rehabilitating war-affected markets enable reconstruction and maintain post-war security.