This paper uses two unique panel data sets to study the causal effect that armed conflict has over entrepreneurial activity in Colombia. Using a fixed effect estimation methodology at the plant level and controlling for the possible endogeneity of armed conflict through the use of instrumental variables, we find that a one standard deviation in the number of guerrilla and paramilitary attacks in a municipality increases the probability of firm exit in 8.1 percentage points. This effect is stronger for smaller plants and has a differential impact with respect to firms' age.
Camacho, A.; Rodriguez, C. Firm Exit and Armed Conflict in Colombia. UNU-WIDER, Helsinki, Finland (2010) 30 pp. ISBN 978-92-9230-332-7 [WIDER Working Paper No. 2010/94]