The Economic Cost of Secessionist

Conflicts in the Philippines

Rhea Molato (2005)

Presented by:
Nixcharl Noriega
BACKGROUND & RATIONALE
EVENT: SECESSIONIST CONFLICT
● Pre-1946. History of Muslim
settlers in Mindanao.
● 1946. Philippine independence
and annexation of Mindanao.
● 1950s. Resettlement policy;
influx of immigrants in Mindanao
resulting to unrest.
● 1968. Jabidah Massacre
● 1969. Formation of the Moro
National Liberation Front (MNLF)
● 1976 -1989. Various
unsatisfactory attempts to
resolve the conflict e.g.
negotiations, and designation of
autonomous regions. Formation
of the Moro Islamic Liberation
Front (MILF).
● Present. Threat of secession to
claim Mindanao remains
unresolved
RESEARCH QUESTION: What is the economic cost of secessionist
conflict in the Philippines?
RATIONALE
● Completing the picture of the costs of armed secessionist conflicts.
○ Direct and immediate consequences of armed conflict (e.g. loss of lives, damage
to property) are easily observable. Impact of armed conflict on national income is
not directly observable; need for a counterfactual.
● Addressing gaps in the literature
○ Studies on the economic impact of armed conflict on national income remains
scarce due to measurement issues and difficulties in imputing values (e.g.
limitations of including only direct costs during battle operations; use of imperfect
data on prices of goods to assign values to output losses)
○ Regression analyses found significant negative correlations between conflict and
steady state levels of GDP per capita, but were not able to establish causality.
METHODOLOGY: SYNTHETIC CONTROL METHOD (SCM)
● SCM generates counterfactual levels of income in the absence of conflict; estimated
effects can be interpreted as a result of secessionist conflict itself.
● Uses national income (GDP per capita) normalized on constant terms and adjusted for
purchasing power parity (PPP) so as to avoid imperfections in price data.
● TREATMENT UNIT. The Philippines
● CONTROL UNIT. Synthetic Philippines constructed from a convex combination of the
income levels of four developing countries: Thailand, Dominican Republic, Fiji, and
Zambia.
THEORY OF CHANGE
Event Outcomes Impact
Sustained violent Overall threats to Missed economic opportunities and diverted investments
armed conflict individual and national
associated with the security; Failure to maximize potential benefits from the influx of
threat of secession foreign direct investments in Southeast Asia which began
Bad international in the 1980s
reputation
Negative economic consequences on national income
manifesting as lower gross domestic product per capita
versus what a person may have earned in the absence of
conflict
IMPACT INDICATOR:
REAL GDP PER CAPITA
Annual economic output at the ✓ Specific Formula and components of GDP are rigidly defined
country level, measured as the
✓ Measurable Final goods and services are assigned monetary valuations
PPP-adjusted GDP per capita
normalized in terms of 2005 ✓ “Achievable” Violent armed conflict can have immediate economic impacts
US dollar values.
✓ Relevant Secessionist conflict harms security and global reputation
Source: Output-based GDP
✓ Timebound Measured on a regular basis; annually and/or quarterly
from Penn World Table
IMPACT EVALUATION METHOD: SYNTHETIC CONTROL METHOD (SCM)

Mathematical treatment of impact DATA.Country-level panel data of GDP for the Philippines and other developing countries
for the period 1960-2003; data includes 9 years of pre-conflict data.
● Effect of secessionist conflict: Has the advantage of availability and consideration of strong potential externality.

● Estimated impact via SCM: CONTROL GROUP SELECTION AND CONSTRUCTION OF THE SYNTHETIC CONTROL
- Exclusion criterion: Exposure to secession-related conflict during the sample period.
- Potential control group was restricted to those countries with similar pre-conflict
characteristics i.e. lie within 20 places of the Philippines’ world wide rank in each of
the variables (Pre-screening)
● Values of W*j should result in a RESULTS OF MATCHING
synthetic control group that closely
reproduces the income levels of the
Philippines prior to secessionist
conflict, and the determinants of
Philippine economic output X.
● The vector of weights W* optimally
chosen are the values that minimize:

● X = (rate of investment flow; population

density; share of
agriculture/manufacturing/services in
GDP; Human Capital Index)
- Synthetic Philippines is a convex combination of output levels of Thailand,
Dominican Republic, Fiji, and Zambia.
- High degree of balance between the actual and synthetic Philippines except for
pop’n.
RESULTS: SUBSTANTIAL & WORSENING COST OF CONFLICT
Figure 2
Figure 5 IMPACT ESTIMATES
FIG 2. Synthetic Philippines provides
an approximation of real GDP per
capita pre-conflict; actual economic
output is less than synthetic output.

FIG 3. Magnitude of economic cost

worsens over time: 400 US$ (10 yrs);
800 US$ (20 yrs); 1600 US$ (30 yrs)

ROBUSTNESS CHECKS
FIG 5. Size of estimated gap for the
Philippines is unparalleled by other
estimated placebo gaps.
Figure 3
Figure 6 FIG 6. Root mean squared prediction
error ratio is highest in Philippines
(excluding Thailand).

CRITICISMS
1. Small number of countries in
placebo tests

2. Economic crisis during Marcos Sr.

regime and their enduring impacts
not controlled for; may have
overstated impact post-1984.
REVEALING THE COST OF CONFLICT:
ECONOMIC & DEVELOPMENT IMPLICATIONS

● On the top of the lives lost, injuries, damage to property, disruption of normal affairs, and threat to
security, among others, arriving at an estimate of the economic costs of secessionist conflicts of
substantial magnitude signals the urgent need to resolve the enduring conflict in Mindanao.
○ That annual costs are substantial and growing as the conflict persists through time
suggests that government and concerned non-state actors can permissibly channel large
amounts of resources to quell the secessionist conflict.

● The effects estimated using the synthetic control method can be interpreted as a result of the
secessionist conflict itself.
○ Unlike other studies, which at best established correlational statistical relationships, by
generating counterfactual levels of income in the absence of conflict i.e. the paper was
able to argue for a causal relationship.