On Thursday, May 14th, ISET hosted Helena Schweiger, Senior Economist in the Office of the Chief Economist at the EBRD, London. Ms. Schweiger presented her recent paper “The impact of armed conflict on firms’ performance and perceptions”, co-authored with Carly Petracco. This study explores the short-run impact of the August 2008 conflict between Georgia and Russia on firms’ performance and their perceptions of the business environment.

The authors used the Business Environment and Enterprise Performance (BEEP) Survey data before and nine months after this armed conflict. The difference-in-differences estimates suggest that despite the short duration, armed conflict had a significant and negative impact on the share of exports in sales and employment for at least a subset of firms.

However, a significant and positive impact was observed on domestic sales. This result can be explained by the hypothesis that after the conflict there was less competition coming from informal firms, as it was difficult for them to overcome the conflict without the official help, and in addition, some official firms exited the market and their market shares were transferred to the survivals.

Perceptions of a few business environment obstacles were also affected, but not always negatively. The results suggest that young firms experienced a scarring effect, which could lead them to close down prematurely. After the conflict, the main obstacle for the firm became geopolitical instability in the region.

The seminar was followed by an active discussion with the audience. All parties attending the seminar exchanged their opinions and commented on the topic. ISET would like to thank Helena Schweiger for giving an insightful presentation to the ISET community.

Click here to download the presentation