Conflict and Poverty in Afghanistan’s Transition

Despite record economic growth in the decade that followed the fall of the Taliban regime, poverty remained stubbornly high in Afghanistan, declining substantially only in regions that suffered more from conflict. This paper aims to explain this apparent puzzle by combining conflict-related indicators at the province level with household level observations. Estimates, which start in 2007 and stop in 2014 because of data availability constraints, show that large troop deployments reduced conflict intensity but also boosted local consumption, an effect reinforced by foreign aid flows being larger in conflict-affected areas. The robustness of these findings is assessed through an out-of-sample simulation of the impact of declining international troops and foreign aid after 2014. The simulation accurately predicts the sharp deterioration in living standards uncovered by a 2016 household survey.