The shadow economy in conflict-affected countries (GSDRC Helpdesk Research Report 1046)

What approaches can be used to leverage the positive social function that shadow economies provide to conflict-affected populations?

From:
Department for International Development
Published
1 January 2014
Document Type:
Literature Review
Theme:
Economic Growth, Governance and Conflict
Authors:
Rohwerder, B.

Abstract

Query

What approaches can be used to (i) Leverage the positive social function that shadow economies provide to conflict-affected populations and (ii) Incentivise war profiteers to join the legal economy in post conflict environments?

Key findings

Approaches which can be used to leverage the positive social function that shadow economies provide to conflict-affected populations include:

  • Using humanitarian aid to complement people’s coping strategies (Goodhand, 2006).
  • Understanding the relationship between different aspects of the economy through stakeholder assessments can reduce the risk that interventions have detrimental impacts on people’s coping strategies (Ballentine and Nitzsche, 2005).
  • Strengthening state capacity to provide basic services, security, and employment to its citizens so they do not have to rely on predatory elements of the shadow economy (Ballentine and Nitzschke, 2005).
  • Providing alternative livelihood opportunities (Looney, 2006).

Approaches which have been detrimental to leveraging the positive social function that shadow economies provide to conflict-affected populations include:

  • Interventions which have not considered the context often result in negative consequences for conflict-affected populations (Pugh and Cooper, 2004).

Approaches which can be used to incentivise war profiteers to join the legal economy in post conflict environments include:

  • Raising the cost of involvement in the shadow economy through sanctions and control regimes, strengthening regulations and improving resource governance.
  • Creating the right conditions for investment through strengthening the state’s capacity to provide a secure and predictable environment (Goodhand, 2004).
  • Providing positive inducements and support to encourage profiteers to invest in legitimate business (Goodhand, 2004).
  • Providing alternative livelihood options (Malone and Nitzschke, 2005). Including through Demobilisation, Disarmament, and Reintegration (DDR) programs (Ballentine and Nitzschke, 2005).
  • Encouraging profiteers own incentives to join the legal economy (Guistozzi, 2007).
  • Taking a regional approach to ensure that the shadow economy does not shift elsewhere (TDRP, 2012).

Approaches which have been detrimental to incentivising war profiteers to join the legal economy in post conflict environments include:

  • Lack of support for a strong effective state means profiteers have no incentive to join the legal economy (Goodhand, 2004).

Citation

Rohwerder, B. The shadow economy in conflict-affected countries (GSDRC Helpdesk Research Report 1046). Governance and Social Development Resource Centre, University of Birmingham, Birmingham, UK (2014) 11 pp.

The shadow economy in conflict-affected countries (GSDRC Helpdesk Research Report 1046)

Published 1 January 2014
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