Drugs and Violence in Afghanistan: A Panel Var With Unobserved Common Factor Analysis

Abstract

This paper addresses the relationship between the level of violence and the opium market in Afghanistan's provinces. We first provide an overview of the nature and extent of the Afghan drug trafficking. This is followed by a VAR analysis of the nexus opium-insurgency activities using monthly time-series data on opium prices and the number of security incidents for 15 Afghan provinces over the period [2004][2005][2006][2007][2008][2009]. We use a multifactor error structure, the Common Correlated Effect (CCE), to include unobservable common factors; Impulse Response functions to describe the time path of the dependent variables in response to shocks; and the Mean Group Estimator to summarize our results across the provinces. Results suggest a conflict-induced reduction in opium prices, while the reverse opium-violence mechanism is mostly negligible. Moreover, unobservable common factors are the main drivers of opium prices and violence.

Stimulant or Depressant? Resource-Related Income Shocks and Conflict

“…While we do not claim that our findings can explain the conflict in Afghanistan in all its complexity, they augment existing insights (e.g., Bove and Elia, 2013;Lyall et al, 2013;Lind et al, 2014;Condra et al, 2018). Although we cannot make strong claims beyond our observation period, the findings are in line with the spread of conflict in Afghanistan in the last years that featured falling prices and lower opium profitability.…”

“…Two studies address opium production and conflict in Afghanistan empirically. Bove and Elia (2013) show a negative correlation between conflict and opium prices for a sample of 15 out of 34 provinces and monthly data over the 2004-2009 period. Our paper augments the findings in Bove and Elia (2013) with a larger sample, longer time period and more systematic identification strategies.…”

“…Bove and Elia (2013) show a negative correlation between conflict and opium prices for a sample of 15 out of 34 provinces and monthly data over the 2004-2009 period. Our paper augments the findings in Bove and Elia (2013) with a larger sample, longer time period and more systematic identification strategies. Lind et al (2014) find a negative impact of Western casualties on opium production over the 2002-2007 period, and no effect in the opposite direction.…”

“…Taliban is one of the few options (e.g., Bove and Elia, 2013). We use survey data to verify that opium profitability indeed matters for well-being at the household level, and show that the apparent reliance on opium increases after an exogenous policy shock that deprived people of an important alternative source of income.…”

Illicit Markets and Violence in Afghanistan: Avenues for Understanding the Use of Targeted Violence and its Implications in Afghan Illicit Economies

“…Moreover, even within countries and localities, the levels of violence vary significantly. For example, recent studies on the relationship between high opium prices and violence in Afghanistan concluded that the rise in prices of the illicit commodity had little effect on levels of violence; conversely, however, higher levels of violence were found to increase drug prices (Bove & Elia 2013;Gehring et al 2018).…”