An Analysis of the Syrian Economy in the Era of Military Conflict, 2011–2020: The Perspective of Government and Economics

Abstract

Moving into the twelfth year of conflict in Syria, the current profile indicates the violence and displacement that unfolded in 2011 have no parallels in recent history. Among the many consequences, physical capital destruction has been the most dramatic- the economic toll of war has been estimated to be about US$1.2 trillion, according to official data. This paper takes stock of the conflict's impact on domestic capital in Syria. It also contributes to the empirical literature on the effect of government capital spending on private capital during 1970–2011, using Vector Error Model (VECM) model. The key findings are: (1) the economy facing extreme limitations in raising the investment rate- as the total investment share of GDP (in real term) has dropped from 20% in 2010 to less than 7% in 2020; (2) the public investment appears to have a significant role- as it influences the economic growth in Syria directly and indirectly through private investment (in which crowding- in effect found to be significant). Further, we argue that political and institutional factors will determine the shape and scope of attracting foreign capital and enhancing local business during the reconstruction phase.