Political unrest, civil war, and - in extreme instances - genocide have contributed to the disappointing economic growth observed in many developing countries in recent decades, particularly in Africa. Sustained periods of violence also influence the distribution of income within a society; a cross-country analysis shows that income inequality increases as a result of violent conflicts, especially in the early post-war period. Immediate post-war efforts to address the social and economic disruption caused by conflict may help to counteract this trend.Inequality, Conflict, War

Marc Vothknecht

English

Research Papers in Economics

German Institute
for Economic Research
Weekly Report
electronic edition—available online only www.diw.de
Violent Conflicts Increase  
Income Inequality
Marc Vothknecht 
mvothknecht@diw.de
No. 35/2009
Volume 5 
November 27, 2009
JEL Classification: 
O11, O15
Keywords: 
Inequality, Conflict, War
Political unrest, civil war, and—in extreme instances—genocide have contributed 
to the disappointing economic growth observed in many developing countries in 
recent decades, particularly in Africa. Sustained periods of violence also influence the 
distribution of income within a society; a cross-country analysis shows that income 
inequality increases as a result of violent conflicts, especially in the early post-war 
period. Immediate post-war efforts to address the social and economic disruption 
caused by conflict may help to counteract this trend.
The number of violent conflicts being fought around the globe in a given year 
increased steadily following the end of the Second World War, and despite a fall in 
the number of conflicts since the collapse of the Eastern Bloc, war still threatens 
the well-being of millions of people worldwide. In recent decades, the face of 
conflict has also changed: conflicts between sovereign nations have become rare; 
rather, the majority of conflicts involve national or regional crises or violent unrest.1 
Approximately one quarter of all countries worldwide are currently experiencing 
violent mass protests, ethnic unrest, civil war, terrorism, or genocide. 
Conflicts have a wide range of political, social, and cultural impacts. The economic 
consequences of conflict can be particularly devastating. Studies investigating the 
effects of civil war on the distribution of production factors confirm that conflicts 
lead to a substantial drop in economic growth.2 These studies underscore falling 
private investment as a key factor that inhibits growth. The pace and scope of eco-
nomic recovery following a conflict then appear to be positively influenced first 
and foremost by international aid and increased social spending. In this study, we 
focus on the effects that violent conflict has on income distribution, a topic that has 
not been systematically investigated to date.3 
1  The 25 international wars that took place between 1945 and 1999 claimed a total of 3.3 million lives. By contrast, 
over the same time period 16.2 million people were killed in inner-state conflicts. See Fearon J., Laitin D.: Ethnicity, 
Insurgency and Civil War, in: American Political Science Review 97 (1), 2005, 75–90.
2  See Collier, P.: On the Economic Consequences of Civil War, Oxford Economic Papers 51, 1999, 168–83 as well as 
Imai K., Weinstein, J.: Measuring the Economic Impact of Civil War, CID Working Paper 51, Harvard University, 2000.
3  See Bircan, C., Brück, T., Vothknecht, M.: Violent Conflict and Inequality, Work in progress, 2009.Violent Conflicts Increase Income Inequality
238 DIW Berlin Weekly Report No. 35/2009
Inequality is Particularly High in 
Africa and Latin America
In the context of this discussion, inequality within a 
society is not only of relevance as an ethical concern. 
Discrepancies in wealth distribution, educational 
opportunities, or access to the labor market can also 
impinge on economic development. When parts of 
a population are not provided with opportunities 
to participate in economic activity, a country may 
forego potential growth. Moreover, if certain social 
groups—such as ethnic or religious communities—
are systematically disadvantaged, this can trigger 
tensions and violent conflict.4
When assessing inequality, economists often focus 
on income distribution by measuring the Gini coef-
ficient (see Box). A global comparison of income-
distribution trends reveals considerable variation 
between continents. Income inequalities have been 
relatively stable over the past 50 years and remain 
much higher in Latin America and Africa than in 
Asia or the OECD countries. In former Eastern 
Bloc countries income inequality was relatively 
low twenty years ago, but has risen considerably 
since then (Figure 1). 
The magnitude of income inequality in a given 
country is determined by a host of institutional and 
economic factors. Inequality is higher, for example, 
in countries in which democratic participation and 
access to education are limited.5 The ability of po-
litical and economic elites to exacerbate inequality 
though cronyism and collusion can be hedged by 
civil rights and a high general level of education. 
4  Stewart, F. (Ed.): Horizontal Inequalities and Conflict: Understanding 
Group Violence in Multiethnic Societies, London, 2008.
5  Li, H., Squire, L., Zou, H.: Explaining International and Intertemporal 
Variations in Income Inequality, in: The Economic Journal 108, 1998, 
26–43. 
Yet historical developments and the legacies of co-
lonialism also play an important role in economic 
disparities.6
In countries with a large agricultural sector, the 
access to credit is of considerable importance.7 
Microcredits, for example, enable populations to 
invest in machines and equipment as well as in the 
6  For example, it has been shown that colonial policies of the Europe-
an powers were determined in part by living conditions within the colo-
nized country. A comparatively high number of colonists emigrated to 
regions with similar climatic conditions, where they established political 
institutions and legal systems of a European mold. By contrast, in regions 
which were not conducive to colonization because of climatic conditions 
or diseases such as malaria or yellow fever, exploitive institutions were 
established, the legacies of which persist to this day. See Acemoglu, D., 
Johnson, S., Robinson, J.: Colonial Origins of Comparative Development: 
An Empirical Investigation, in: American Economic Review 91, 2001, 
1369–1401.
7  Tsiddon, D.: A Moral Hazard Trap to Growth, in: International Econo-
mic Review 33, 2001, 299–321.
Box
Measuring Inequality
The distribution of income or wealth in a given 
country is usually determined based on household 
surveys. In Germany, for example, one can draw 
on the Socio-Economic Panel Study’s longitudinal 
data. The magnitude of inequality is normally de-
termined based on the so-called Gini coefficient. 
The formula, which is named after the Italian stat-
istician Corrado Gini, is written as follows:
where n equals the number of observed individu-
als and yi,j  the respective individual value for 
income or wealth. By definition, the Gini index 
is a number between 0 and 100. A Gini coefficient 
of 0 means that income is distributed with perfect 
equality; inequality rises as the coefficient ap-
proaches 100.
2
1 1
1
2
n n
i j
i j
G y y
n y = =
=
Figure 1
Income Inequality in Various Regions 
of the World
Gini coefficients
20
25
30
35
40
45
50
55
60
1960–69 1970–79 1980–89 1990–99 2000–09
Africa
Latin America
Asia
Eastern Europe
OECD countries
Source: Calculations by DIW Berlin.  DIW Berlin 2009Violent Conflicts Increase Income Inequality
239 DIW Berlin Weekly Report No. 35/2009
education of the next generation. If the financial 
system does not provide such credits and if the as-
sets which are provided as collateral (such as land) 
are also unequally distributed, then the income gap 
between the rich and poor is likely to widen over 
the long term. The effects that globalization and 
open markets have on income distribution ultimately 
hinge on trends in labor demand. While economic 
theory predicts that economies with a large pool of 
low-qualified labor should experience pay increases 
in the low-wage sector and, in turn, a decline in wage 
inequality, reality demonstrates that other outcomes 
are possible.8
Violent Conflicts Exacerbate 
Inequality
The effects of violent conflict on income distribu-
tion are manifold and depend in large part on the 
nature of the conflict and conditions in the impacted 
economy. Conflicts often lead to a severe decline 
in economic growth. The destruction of production 
facilities and disabling of transportation or utility 
networks all inhibit economic activity.
Capital flight—particularly on the part of foreign 
investors—can accelerate this process of a dete-
riorating capital stock. The consequences include 
higher prices for capital-intensive goods, an increase 
in unemployment, as well as falling wages, particu-
larly in the low-wage sector. In such a situation, the 
wealthy and highly educated are typically better 
positioned to seek refuge for themselves and their 
capital abroad.
Damaged transportation and communication net-
works and an environment marked by insecurity 
and violence also hamper access to markets. Given 
the fact that conflict often takes place in agricultural 
regions, this particularly affects rural populations. 
When access to markets is limited, the only option 
is a retreat to subsistence farming, an eventuality 
that often entails considerable reductions in labor 
productivity. In extreme circumstances, hostilities 
may force the civil population to flee, destroy har-
vests, or disrupt farming activities over the long 
term (e.g. due to landmines).
Conflict not only impairs markets, it also severe-
ly limits the ability of governments to function. 
Declines in economic activity lead to reduced tax 
revenues. The collection of taxes is also hindered 
by civil disorder and disruptions to the everyday 
processes of government. In many cases, consider-
8  Anderson, E.: Openness and Inequality in Developing Countries: A 
Review of Theory and Recent Evidence, in: World Development 33 (7), 
2005, 1045–1063.
able increases in military spending displace social 
spending. The poorer segments of a population are 
more dependent on social services and hence the 
first to be affected by declines in social spending 
(e.g. cutbacks in education and health care).
Not Everyone Loses Out
When social structures are in a state of erosion and 
the government’s monopoly on violence is chal-
lenged, this creates a fertile ground for corruption, 
illegal markets, and collusionary and unjust enrich-
ment. The trafficking of drugs, weapons, diamonds, 
precious wood, or even people produces large gains 
for a relatively small group of profiteers, often with 
the support of political and military elites.
The plight of large segments of the population also 
presents an opportunity for merchants and middle-
men to profitably sell goods essential for survival in 
exchange for remaining objects of worth. If conflicts 
erupt along ethnic or religious lines, the systematic 
expulsion and dispossession of civilian populations 
is also a common method of waging warfare.
Effects Last Well Beyond the End of 
War
On the whole, the economic changes associated with 
the outbreak of violent conflict indicate that income 
inequality should rise. Moreover, the economic and 
social disruptions caused by a conflict are often so 
massive that its nominal conclusion does not au-
tomatically entail a return to irenic and productive 
economic relations.
The repair of damaged infrastructure is just as 
important as the restoration of security for a re-
turn to healthy economic conditions. This is often 
hampered, however, by roving bands of former 
combatants, the ready availability of weapons, and 
resulting high rates of criminality. Restoring the 
state’s monopoly on violence is necessary if criminal 
structures that took hold during the conflict are to 
be stamped out.
As there is a high risk that hostilities will be reignit-
ed in the years immediately following a conflict,9 in 
many cases belligerents refrain from demobilizing 
right away. As a consequence, it usually takes some 
time for government spending to shift away from 
military expenditures and toward civil investment 
and social programs.
9  See for example Collier, P., Hoeffler, A.: Conflicts, in: Lomborg, B. (Ed.): 
Global Crises, Global Solutions, Cambridge 2005.Violent Conflicts Increase Income Inequality
240 DIW Berlin Weekly Report No. 35/2009
The return of private investors is also dependent 
on the restoration of peaceful market structures 
and political stability. Similarly, international re-
construction efforts normally take a while to get 
underway. Consequently, their effects, particularly 
in rural regions, are often delayed. The period im-
mediately following a war is thus still marked by 
the dislocations caused by the conflict. As such, 
the road to normality is often a process that takes 
many years.
Increasing Inequality in Times of 
Conflict
The effects of violent conflict on income distribution 
are analyzed with the aid of data from 128 countries. 
Information on Gini coefficients for the time period 
between 1960 and 2004 are assessed with reference 
to data on conflicts in these countries.
The data on income inequality are derived from the 
UNU-WIDER World Income Inequality Database, 
which contains more than 5,000 Gini coefficients 
from various sources. In order to ensure the com-
parability of these data, which are based on various 
definitions of income, we use a regression analysis 
that is often applied in this connection.10
Data on violent conflicts are obtained from the 
UCDP/PRIO Armed Conflict Dataset. In the data-
base, violent conflicts which caused at least 1,000 
deaths in a given year are defined as wars. 
Shorter Wars, Fewer Victims
Whereas the world wars of the last century were for 
the most part fought between the armies of large 
industrialized nations, in recent decades conflicts 
have primarily taken place in developing countries. 
The contours of conflict over the past 50 years also 
underwent a change with the collapse of the Eastern 
Bloc. On average, wars that began prior to 1990 
lasted considerably longer than those that began 
after the fall of the Berlin Wall (13.3 vs. 4.5 years).11 
The intensity of the conflicts has also declined: wars 
that began prior to 1990 caused an average of 6,000 
annual battle deaths; wars that began after 1990 
10  Estimates of Gini coefficients are thus based on either income or con-
sumption data, with income being normally distributed more unequally 
than consumption. The magnitude of such structural differences can be 
estimated with econometric techniques in order to adjust Gini coeffici-
ents based on different data types. See for example Grün, C., Klasen, S.: 
Growth, Income Distribution, and Well-Being in Transition Countries, in: 
Economics of Transition 9 (2), 2001, 359–394.
11  Conflicts which were still ongoing at the end of the observed time 
period were also included in the analysis. It should be noted that the ma-
jority of these ongoing conflicts began after 1990.
caused half as many deaths: 3,000 per annum on 
average.
The data indicate that income disparities intensify 
in times of war. On average, the Gini coefficient is 
much higher during times of conflict (47 points) than 
during times of peace (40 points). Yet one reason 
for higher inequality in crisis regions could be that 
income disparities were high to begin with, even 
prior to the outbreak of conflict. In order to prevent 
such a bias, we examine the deviation of the Gini 
coefficient from its long-term average for each given 
country, thereby putting changes in inequality across 
countries on a comparable basis. Therefore we do 
not focus on cross-country differences in income 
inequality, but rather on trends in inequality within 
individual nations. Figure 2 shows how the Gini co-
efficient for all countries affected by violent conflict 
changes on average with the outbreak of conflict.
Rising Inequality in the Post-War 
Period
Income inequality is relatively stable prior to the 
outbreak of conflict, and only increases moderately. 
In the first few years of conflict, however, average 
inequality jumps considerably. During the transi-
tion from war to peace, the immediate post-war 
years are also marked in particular by increased 
inequality (see Figure 3). Inequality climaxes five 
years after a conflict ends, and then returns to its 
initial level approximately one decade after the end 
of conflict.
Figure 2
Income Inequality Over the Course  
of a War
In Gini coefficient points
-1
0
1
2
3
4
5
-4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Outbreak of conflict
Source: Calculations by DIW Berlin.  DIW Berlin 2009DIW Berlin
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These trends are confirmed 
by  a  statistical  regression 
analysis  which,  alongside 
the  existence  of  a  violent 
conflict, accounts for other 
determinants of inequality, 
including economic power, 
the size of the government’s 
budget, and trade volumes in 
the examined countries. The 
rise in inequality attributable 
to conflict is particularly high 
in the post-war period (an 
estimated 3.0 Gini points). 
This is a considerable jump 
in inequality in light of the 
generally rather slow evo-
lution of income inequality 
over time.
Conclusion
The legacies of conflict that persist into the post-war period—including continued 
high military expenditures, little room for redistributive social policies, and the 
persistence of collusive and exploitive structures—are possible explanations for 
rising income inequality in the first post-war years. The tendency for inequality to 
rise should be taken into account during reconstruction. The restoration of security, 
increased social spending, and the strengthening of peaceful economic activities 
appear to be appropriate means for counteracting rising inequality and, in certain 
instances, a renewed outbreak of violence.
Future research should focus on achieving a better understanding of the processes 
which underlie changes in income inequality. Salient policy recommendations 
could be achieved with an examination of conditions at the micro-level which are 
specific to given countries and conflicts. Because of a lack of data, it has not been 
possible to date to analyze distributional effects on specific income groups (i.e. are 
the poor getting poorer or merely the rich richer?). Ongoing data collection efforts 
in crisis regions will help to answer such questions.
(First published as “Gewalttätige Konflikte erhöhen Einkommensungleichheit”, in: 
Wochenbericht des DIW Berlin Nr. 40/2009.)
Figure 3
Income Inequality During Transition 
to Post-War Period
In Gini coefficient points
-3
-2
-1
0
1
2
3
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9
Conclusion of conflict
Source: Calculations by DIW Berlin.  DIW Berlin 2009

Violent Conflicts Increase Income Inequality

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Violent Conflicts Increase Income Inequality

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