Economies across the Middle East and Central Asia are more affected by conflicts—even a decade after a severe conflict, their income per capita remains about 10 percent lower.

The idea that violent conflict reduces economic output is uncontroversial. However, the repercussions are notably harsher and longer lasting in these regions than in most others, as we show in a chapter of our latest Regional Economic Outlook for the Middle East and Central Asia.

A year after the start of a severe conflict, countries in these regions lose about 2 percent in real GDP per capita compared to before the conflict, with the decline extending to about 10 percent after a decade.

Countries elsewhere, by contrast, typically have a similar drop after the first year, of about 2 percent, but then largely recover after the fifth year, as the Chart of the Week shows.

The findings underscore the adverse effects on economic performance, as well as higher inflation and lower consumption, investment, exports, and fiscal revenues.

Our analysis, based on events from 1989 to 2022 tracked by the Uppsala Conflict Data Program, includes episodes of lethal violence between groups where at least one party is the government or between two organized groups, neither of which is a government. Some of the region’s most conflict-affected states—Afghanistan, Iraq, Somalia, Sudan, Syria—have endured some form of conflict for most of the sample period.

The worse effects seen in the Middle East and Central Asia, among the world’s most conflict-prone areas, likely reflect sharper effects from higher-intensity conflicts (which are more frequent in these regions) and the prevalence of exacerbating preexisting conditions.

For example, our findings suggest that countries with weaker institutions tend to suffer larger losses than other countries. Conflicts not only impact the countries directly involved but can also have knock-on effects on other countries, with the impact varying based on the channel of exposure.

The effects of conflicts stretch well beyond economics, causing immense human suffering, death, and increased fragility and food insecurity. Strong institutions and economic fundamentals (such as room in government budgets to respond to humanitarian and social needs) can help buffer an economy against the impact.

This blog is based on Chapter 2 of the April 2024 Regional Economic Outlook for the Middle East and Central Asia, “Fragile Foundations: The Lasting Economic Scars of Conflict.”

Colombe Ladreit is an economist in the Regional Analytics and Strategy Division of the Middle East and Central Asia Department at the International Monetary Fund (IMF). Prior to joining the IMF, she worked at the European Central Bank, the French Treasury, and the Peterson Institute for International Economics. Her research interests include labor economics, structural reforms, and fiscal policy. She holds a PhD from Bocconi University, Italy.

Borislava Mircheva is a senior economist in the Middle East and Central Asia (MCD) department of the IMF and holds a PhD in Economics from American University. She is currently working in the Regional Studies Division (RSD) where she is leading work on the Regional Economic Outlook. Prior to joining RSD, Ms Mircheva worked on a wide range of economies in Africa, Europe, and the Middle East. She also has versatile analytical and technical skills with numerous selected issues papers, cross-country papers, and working papers on a range of topics from spillovers in the Nordic countries, fiscal multipliers in Denmark, productivity growth in Norway, and explaining the shadow economy in Europe, to GVC participation and central bank digital currencies.

Troy Matheson is a Senior Economist in the Middle East and Central Asia at the International Monetary Fund (IMF). Prior to joining the IMF in 2009, he was an Advisor in the Modelling Division at the Reserve Bank of New Zealand. He holds a postgraduate degree in economics from the University of Canterbury, New Zealand. He has published papers in international journals in the fields of macroeconomic modelling, monetary policy, time series modelling, and forecasting.

This article first appeared at the IMF Blog, a forum for the views of the International Monetary Fund (IMF) staff and officials on pressing economic and policy issues of the day. The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board. Reprinted with permission