Conflict and small-scale investment: Evidence from Colombian peace agreement

Abstract

The long-run effects of conflict on agricultural production depend crucially on how conflict affects farm investment. We use the Colombian peace agreement to estimate how the reduction of violent conflict affects farmer investment decisions. In areas where the armed group was initially present, the end of conflict led to a more than twofold increase in farm investment, as farmers moved production from annual to perennial crops. We find no evidence that investment came at the expense of short-term consumption, and was likely financed by debt. Our results suggest that decreased investment may be an important mechanism through which armed conflict inhibits agricultural development and points to a potentially large peace dividend.