Real exchange rate misalignment and civil conflict: Evidence from sub-Saharan Africa. (28th September 2019)

• Record Type: Journal Article
• Authors: Ambaw, Dessie Tarko; Sim, Nicholas
• Is Part Of: Oxford economic papers. Volume 73:Number 1(2021)
• Page Start: 178
• Page End: 199
• Publication Date: 2019-09-28
• Subjects: D74 -- E32 -- F31 -- F41 -- O11; Economics -- Periodicals; 330.05
• DOI: 10.1093/oep/gpz059
• Languages: English
• ISSNs: 0030-7653

Abstract

Abstract: Real exchange rate (RER) misalignment, which is the deviation of the actual RER from its equilibrium, occurs frequently in developing countries. In this article, we show that civil conflict in sub-Saharan Africa (SSA) can be influenced by RER misalignment. To do so, we construct an RER misalignment index whose variation is driven by shocks to each country's RER fundamentals. Based on a panel of 35 countries from 1975 to 2006, we find that RER misalignment may increase the incidence of civil conflict in sub-Saharan Africa on average. Crucially, this effect is present even when rainfall and commodity price shocks—two widely acknowledged causes of civil conflict—are controlled for. Therefore, our article suggests that RER stabilization can foster political stability in the region.