Curious to dive deeper into the findings? For a comprehensive analysis and detailed insights, read the full research paper.
By Raul Duarte
Can the transition from civil war to peace in resource-rich countries like Angola actually harm private sector performance and investor confidence?
This paper, written by CID Faculty Affiliate Eliana La Ferrara and co-author Massimo Guidolin, investigates how armed conflict affects private sector performance by examining stock market reactions to the end of the Angolan civil war in 2002. Using an event study around the death of rebel leader Jonas Savimbi and the subsequent cease-fire, the authors show that the resolution of conflict was perceived as bad news by investors in diamond mining companies operating in Angola. These firms experienced significantly negative abnormal stock returns following the conflict’s end, suggesting that, in some contexts, war can create favorable conditions for incumbent firms.
Key Findings:
- Negative investor response to peace: On the day of Savimbi’s death, the “Angolan” diamond portfolio experienced a 4% drop in abnormal returns, with cumulative abnormal returns declining by 7% over the next three days. No such effect was observed for similar firms not operating in Angola.
- Conflict conferred advantages to incumbents: Firms may have benefited from reduced competition, lower bargaining power of the state, lenient regulatory enforcement, and unofficial deals during wartime.
- Greater exposure linked to larger losses: Firms with higher shares of their assets in Angola experienced larger drops in stock value, suggesting that investors specifically penalized exposure to the post-conflict regulatory and political environment.
- Robust across methods and events: Alternative end-of-conflict events and increased government regulation also led to negative abnormal returns for Angolan firms. In contrast, anti-corruption episodes during the war led to positive stock reactions.
Impact and Relevance:
This study provides insight into the political economy of conflict, revealing that peace is not always rewarded in capital markets, at least not uniformly. In resource-rich, institutionally weak environments like Angola, civil war may unintentionally create profitable conditions for incumbent firms by reducing competition, lowering regulatory scrutiny, and enabling informal arrangements. The negative investor response to the end of the Angolan civil war suggests that markets anticipated post-conflict governance to be less favorable for these firms, highlighting how private sector incentives can diverge from the public interest in fragile states.
The implications are significant for both conflict resolution and post-war reconstruction. In a global context where the private sector is increasingly expected to support peacebuilding, this research underscores that firms may, under some conditions, have vested interests in conflict persistence. Policymakers and donors must therefore go beyond assuming automatic business support for peace and instead design post-conflict institutions, such as transparent licensing regimes and competitive tendering, that realign private incentives with social goals. Otherwise, the transition from war to peace risks entrenching corruption or rent-seeking behavior under a new guise.
More broadly, the findings challenge optimistic assumptions that political stability and peace are uniformly positive for all types of businesses. They invite a more nuanced understanding of how violence, governance, and investment interact in weak states, particularly in sectors like mining, where rents are high and regulatory institutions are vulnerable. It underscores the need to integrate political economy analysis into investment risk assessments and the design of post-conflict economic governance. By rigorously documenting investor behavior around a major turning point in Angola’s conflict, the paper contributes to a deeper understanding of how conflict shapes not only political outcomes but also market dynamics—and of how markets, in turn, can shape the incentives for peace.
CID Faculty Affiliate Author
CID Faculty Affiliate Author
Eliana La Ferrara
Eliana La Ferrara
Eliana La Ferrara is a Professor of Public Policy at Harvard Kennedy School. She is a Past President of the Econometric Society and Program Director of Development Economics for the Center for Economic Policy Research (CEPR). She is also a J-PAL Affiliate, a Foreign Honorary Member of the American Economic Association, and an International Honorary Member of the American Academy of Arts and Sciences.
Image Credits
Photo by Jorge Sá Pinheiro on Unsplash
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