Firm Responses to Violent Conflicts

Abstract

We estimate dynamic treatment effects of violent political conflicts on firm decisions to purchase inventory. We analyze monthly purchase data of 431 clients of a multinational beverage firm in Mozambique, as well as annual survey data. Firms respond to increases in conflict by decreasing purchases of inventory by up to 15%. This effect is significantly more pronounced for smaller firms. Firms exposed to violent conflicts also show greater intention to expand to less violent locations. The eruption of violent conflicts have significant short-term economic impact for small firms however, these do not persist beyond 2 months.