The Economic Costs of Conflict? A Case Study of Punjab
We assess the economic costs of the secessionist conflict in Punjab by
applying the synthetic control group method of Abadie and Gardeazabal
(2003) to data from India, creating a "counterfactual" Punjab without
terrorism as a weighted average of other Indian states. In doing so
we demonstrate the usefulness of placebo analyses ? creating synthetic
controls for states in the original control group ? in inferring
causal effects with only one treated observation. While at first
glance our results show a gap between the actual and counterfactual
GDP growth paths, we find that this gap is comparable to the gap
produced by running placebo analyses on states that did not experience
terrorism. Hence we cannot infer that terrorism had a strong negative
impact on growth in Punjab. This stands in contrast to Abadie's and
Gardazabal's results from Spain, where the GDP gap for the Basque
Country during its period of terrorism exceeds those generated from
placebo analyses on other regions.