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  • Print publication year: 2009
  • Online publication date: June 2014

12 - Binary dependent variables


Economic issues include:

Conflict and inequality

Institutions and development

Econometric issues include:

Binary dependent variable estimation

Logit and probit

Data issues include:

The Gini coefficient

The issue

Poverty and armed conflict are the norm for a large proportion of the world's poor. In moderating the socio-economic impacts of these conflicts, the military as an institution plays a complex role. It may bestow some benefits in countries with institutions that are otherwise underdeveloped and perhaps it is not surprising that a well-organised and powerful public institution, when engaged in peaceful activity, should have positive impacts in countries with otherwise underdeveloped institutions. A lot of empirical work has been done, following Benoit (1978), to show that defence spending necessitated by real or potential armed conflicts encourages the development of human skills and essential infrastructure within poor economies, thus alleviating poverty. Benoit's study led to a range of further studies, some of which questioned Benoit's methodology and findings, and others which investigated the relationship between defence and economic growth using different methodologies.

Whilst the military as an institution may have a positive impact in peacetime, what about the direct impacts of war and conflict? What are its causes and consequences? In this chapter we will start to illuminate these questions by assessing evidence about the relationship between the incidence of war and relative poverty.

Further reading
Textbooks and monographs
Collier, P. (2008) The Bottom Billion, Oxford: Oxford University Press.
Sandler, T. and Hartley, K. (1995) The Economics of Defense, New York: Cambridge University Press.
Schelling, T. (1960) The Strategy of Conflict, Cambridge, MA: Harvard University Press.
Thomas, R. L. (1997) Modern Econometrics – An Introduction, Harlow: Addison-Wesley, pp. 469–77.
Wooldridge, J. M. (2003) Introductory Econometrics (2nd edition), Thomson South-Western, Chapters 7 and 17.
Academic articles and working papers
Baddeley, M. C. (2008) ‘Poverty, armed conflict and financial instability’, Cambridge Working Papers in Economics No. 0857, Faculty of Economics, University of Cambridge.
Benoit, E. (1978) ‘Growth and defense in developing countries’, Economic Development and Cultural Change, vol. 26, 271–80.
Collier, P. and Hoeffler, A. (2004) ‘Greed and grievance in civil wars’, Oxford Economic Papers, vol. 56, 563–95.
Fitzgerald, E. V. K. (1997) ‘Paying for the war: macroeconomic stabilization in poor countries under conflict conditions’, Oxford Development Studies, 25(1), 43–65.
Schelling, T. (1958) ‘The strategy of conflict – prospectus for a reorientation of Game Theory’, The Journal of Conflict Resolution, vol. 2, no. 3 (September), 203–64.
Policy briefs
Jackson, M. O. and Morelli, M. (2005) ‘War, Transfers, and Political Bias’,
,UNMillennium Development Goals Report 2007, Geneva: United Nations.
,UNDP, Human Development Report, Geneva: United Nations, various years.
,World Bank, World Development Report, World Bank, Washington, various years.