Seminario CEDE - Nicolás de Roux
We study the effect of civil conflict on investment using detailed microdata from Colombia’s largest agricultural bank. We use a difference-in-difference design that compares municipalities with varying levels of historical activity by insurgent group FARC before and after the 2016 demobilization agreement between this group and the Colombian government. We show that the monthly number of loans to small farmers in municipalities with historical FARC presence increases disproportionately after the agreement, without changes in average size or interest rate. This increase is driven by a larger number of applications and is concentrated in municipalities with better access to markets. There is no change in default rates and reports from randomized audits reveal no difference in misuse of funds. Effects are much weaker during the negotiation phase that preceded the agreement, despite a reduction in violence, suggesting that armed group presence and the threat of continued conflict disincentivize the pursuit of profitable investments.