ECONOMIC AND SOCIAL COMMISSION FOR WESTERN ASIA (ESCWA) TRENDS AND IMPACTS IN CONFLICT SETTINGS: CONFLICT AND MDGS ISSUE No. 2 United Nations Distr. GENERAL E/ESCWA/ECRI/2011/2 1 November 2011 ORIGINAL: ENGLISH ECONOMIC AND SOCIAL COMMISSION FOR WESTERN ASIA (ESCWA) TRENDS AND IMPACTS IN CONFLICT SETTINGS: CONFLICT AND MDGS ISSUE No. 2 United Nations New York, 2011 11-0284 Acknowledgements This study was prepared by the Emerging and Conflict Related Issues (ECRI) Section of ESCWA under the leadership and coordination of Vito Intini. The team comprised Parvinder Kler (lead author); Fabrizio Carmignani, Asima Ghazi-Boullion and Maya Bou Ali (consultants); Imad Mhanna, Rana el-Houjeri and Fouad Ghorra (research assistants); and Ghada Sinno (administrative assistant). Invaluable feedback, recommendations and reviews were provided by the ESCWA Panel Review Committee consisting of Syed Ahmed, Rania al-Jazairi, Janet Forbes, Kenneth Iversen, Tanja Sejersen, Denise Strumpf and Rami Zaatari; and by Carlos Bozzoli (German Institute for Economic Research), Clemens Breisinger and Jean Francois Maystadt (International Food Policy Research Institute), Colin Scott and Caroline Benson (the World Bank), and Youssef Chaitani and Tarik Alami (ESCWA). iii iv CONTENTS Page Acknowledgements .............................................................................................................................. iii Abbreviations and explanatory notes ................................................................................................... viii Executive summary .............................................................................................................................. ix Introduction .......................................................................................................................................... 1 Chapter I. CONFLICT AND DEVELOPMENT: A SURVEY OF THE LITERATURE ................... 3 A. Fragile States and conflict .................................................................................................. 7 B. Effects of conflict on MDGs .............................................................................................. 11 C. Cost of civil conflict on development ................................................................................. 13 D. Summary on the literature .................................................................................................. 15 II. TAKING STOCK: MDG PROGRESS IN CONFLICT-AFFECTED COUNTRIES AND TERRITORIES OF THE ESCWA REGION .............................................................. 16 A. ESCWA on the global stage ............................................................................................... 16 B. MDG1: eradicate extreme poverty and hunger .................................................................. 17 C. MDG2: achieve universal primary education ..................................................................... 19 D. MDG3: promote gender equality and empower women .................................................... 22 E. MDG4: child mortality rates .............................................................................................. 24 F. MDG5: improve maternal health ........................................................................................ 24 G. MDG6: combat HIV/AIDS, malaria, tuberculosis and other diseases ............................... 25 H. MDG7: ensure environmental sustainability ...................................................................... 26 I. Composite MDG index ....................................................................................................... 26 J. Summary on MDG progress ............................................................................................... 27 III. ASSESSING THE DEVELOPMENT COSTS OF CONFLICT ......................................... 29 A. Preliminary findings and stylized facts .............................................................................. 29 B. Econometric results and discussion .................................................................................... 32 C. Introducing the war variables ............................................................................................ 35 D. Transmission channels I: conflict and institutions.............................................................. 36 E. Transmission channels II: conflict and trade ...................................................................... 38 F. Transmission channels III: conflict and physical capital accumulation (investment) ........ 39 G. Conflict and MDG-related dimensions of development ..................................................... 40 H. Summary on the development costs of conflict .................................................................. 44 IV. ACHIEVING MDGs USING BUDGETARY LEVERS ....................................................... 46 A. Data limitations .................................................................................................................. 48 B. Public spending in the greater Arab region ........................................................................ 48 C. Country-level budgetary situation vis-à-vis MDG progress ............................................... 49 D. Gains of heightened efficiency and increases in pro-MDG expenditure ............................ 52 E. Fiscal space: financing budgetary expenditures in adverse conditions .............................. 53 F. Opportunity cost of conflict on fiscal space: a brief discussion ......................................... 57 G. A regional approach to donor assistance ............................................................................ 58 H. Institutional impediments in achieving fiscal space ........................................................... 60 I. Social protection programmes as a mechanism to help achieve MDGs ............................. 60 J. Summary on using budgetary levers to achieve MDGs ..................................................... 64 v CONTENTS (continued) Page V. SUMMARY AND RECOMMENDATIONS ......................................................................... 65 A. Conclusions and policy implications .................................................................................. 65 B. Specific recommendations for conflict-affected ESCWA member countries .................... 69 Annex .................................................................................................................................................... 71 LIST OF TABLES 1. Major episodes of violence and conflict in the ESCWA region, 1947-2010 ............................. 4 2. Ratio of primary commodity exports (petroleum, petroleum products and related materials) to GDP in the ESCWA region, 2000-2008 ................................................................................ 8 3. Challenges faced by post-conflict countries in achieving their MDG targets ............................ 12 4. Civil conflict and its developmental effects ............................................................................... 14 5. Current MDG status in the ESCWA region ............................................................................... 17 6. Poverty rates in conflict-affected countries and territories of the ESCWA region .................... 18 7. Adjusted net enrolment ratio in primary education: conflict-affected countries and territories of the ESCWA region ................................................................................................................ 20 8. Adjusted NER in primary education by gender: conflict-affected countries and territories of the ESCWA region ................................................................................................................ 21 9. Under-five and infant mortality rates, and measles immunization rates: conflict-affected countries and territories of the ESCWA region .......................................................................... 24 10. Composite MDG index by basket and triennium: conflict-affected countries and territories of the ESCWA region ................................................................................................................ 28 11. Baseline model of income .......................................................................................................... 33 12. Baseline model of income with physical capital accumulation (investment) ............................ 34 13. Income with total war duration .................................................................................................. 35 14. Income with civil and inter-State war duration and ESCWA dummies ..................................... 35 15. Conflict and institutions ............................................................................................................. 37 16. Conflict and trade ....................................................................................................................... 38 17. Conflict and physical capital accumulation (investment) .......................................................... 40 18. War and social development ...................................................................................................... 42 19. Effects of one additional year of war ......................................................................................... 42 20. Military expenditure versus social expenditure .........................................................................