Studies about the Role of Governance and Violent Conflicts in Society and Economics

Abstract

This thesis studies the question: Why are developed countries rich and developing countries poor? I asked myself this question for the first time during my volunteer service in Central America. Therefore, I analyze the role of governance and violent conflicts in society and economics. It consists of four scientific papers: The first paper investigates the impact of governance on inward foreign direct investment. FDI is important for socioeconomic development because it represents a significant channel of capital, knowledge, and technology transfer. The second paper examines the effect of financial development and ethnic heterogeneity on regional consumption risk-sharing in Ukraine. Consumption risk-sharing is a relevant socioeconomic approach to smoothen negative income shocks. The third paper reviews the impact of governance on populist rhetoric. This is crucial because populist trends can be obstructive to socioeconomic development. Finally, the fourth paper correlates the drug war with regional social capital in Mexico. Social capital, i.e., trust, is a foundation for socioeconomic development. The results show: (1) Governance indicators are important determinants of inward FDI for 38 developed countries. In comparison, for 79 developing countries, another country characteristic – the mean tariff rate – is more important than the institutional setting. (2) In Ukraine, regional consumption risk-sharing is significantly higher in the regions with a large Russian minority. In contrast, the degree of financial development does not affect the regional degree of consumption risk-sharing. (3) Governance indicators are important determinants of mitigating populist rhetoric for 40 developing and developed countries. Moreover, we document a positive spatial correlation for populist rhetoric. (4) In Mexico, regional social capital is significantly lower in regions that experience a high degree of violence due to the drug war. Moreover, we document a positive spatial correlation for social capital. Overall, it can be stated that governance is an important determinant for economic development and the well-being of the society, whereas violent conflicts lead to a deterioration in economic and social welfare as the case studies of Ukraine (War in Donbas) and Mexico (drug war) show