MACROECONOMIC ASPECTS OF INTERNAL CONFLICTS: A CONCEPTUALISATION

This exploratory paper outlines the special macroeconomic features of countries populated by two groups of people engaged in internal conflict yet forming a central government for generating benefits that cannot be privately attained. Each group exerts an influence on the central government in accordance with its relative military strength. The central government collects taxes, exports the country's natural resources and tourist attractions, attracts external grants and loans, and distributes the net revenues between the rival groups. The paper highlights the implications of the groups' investment in military strength for the state's net revenues and their distribution, for the state's external debt, and for the groups' ability to maintain and increase their ranks, production capital and per capita income.