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How Much WarAs important as knowing how wars start and end is knowing Will We See? how much war we are likely to observe in any given Estimating the Incidence of Civil War period. In strategies for preventing civil war, political in 161 Countries liberalization should be a higher priority than economic

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Foreign aid, the real exchange rate (RER), and economic growth are three key variables that shape the aftermath of civil wars in many developing countries. Panel estimations drawn from a sample of 39 conflict and 44 nonconflict countries between 1970 and 2004 indicate that although postconflict countries receive larger aid flows and exhibit moderate RER overvaluation after peace is attained, overvaluation cannot be traced to aid. Yet foreign aid is among the significant determinants of the equilibrium RER. Aid is also an important determinant of economic growth, particularly after peace is reached. Aid exhibits decreasing returns, however, and interacts negatively with RER overvaluation. RER overvaluation reduces growth, but this effect is ameliorated by financial development. Postconflict policies should therefore aim to use aid prudently, avoid RER misalignment, and support financial and capital market development to achieve high and stable growth in the aftermath of war and beyond. JEL codes: F5, F3, F43 Countries emerging from civil wars usually have enormous humanitarian and developmental needs. Foreign aid can play an important role in the postconflict reconstruction of these economies, as well as in the consolidation of peace and the reduction in the risks of future conflicts. Postconflict countries tend to experience surges of aid flows, which have potential consequences for their competitiveness, measured by the real