Role of Policy Research in the Recovery Process. March 01, 2023. ESSP/NPS/ILRI

1. Role of Policy Research in the Recovery Process
Alemayehu Seyoum Taffesse
ESSP/IFPRI
Presentation at the seminar on ‘Ethiopia’s Recovery from Crisis –
Domains and Options,’ organized by ESSP, ILRI, and NPS,
March 1, 2023
1
Disclaimer – The views expressed in the following do not necessarily
reflect those of IFPRI

2. Outline
 Context
 Conflict, welfare, growth
 Role of policy research;

3. Context
 Period of reform – the Homegrown Economic Reform (HGER) program,
Ten-Year Development Plan (TYDP) (2014-2023 EC).
 Period of shocks – the COVID-19 pandemic, the worst locust invasion in
decades, a major conflict in the Northern regions of the country, a harsh
drought in large areas in the country’s South, East, and North, global
economic crisis due to the war in Ukraine;
 Economic challenges – disrupted flow of goods and services, massive
internal displacements, destruction of assets, millions facing increased
food insecurity, weakening of institutions, economic sanctions, forced
reallocation of resources, macro imbalances;

4. Context (continued)
 GoE’s economic reforms and responses to shocks
 continued reform initiatives (albeit at a slower pace) – privatization of
SOEs, particularly the telecom sector, and opening some sectors for
external competition (logistics, for example).
 response to the COVID-19 pandemic – introduced a partial lockdown,
including extended school closure, a State of Emergency (ended in
August 2020), an economic stimulus package, and tax reliefs to
businesses.
 price stabilization measures – increased importation and subsidized
provision of some food items, sanctions against alleged bad practice by
individual traders, and extended a temporary rent freeze, elimination
of VAT and import taxes on food items,
 social protection – maintained and renewed the large Productive
Safety Net Program (PSNP) combined with emergency relief;
 recovery – a Three-Year Economic Recovery Plan in progress.
 Welfare consequences – rapid inflation, slower growth, and rising
poverty.

5. Incidence of conflict events
November 4, 2018 – November 3, 2020 November 4, 2020 – March 25, 2022
Incidence of
Battles and
Violence
against
Civilians
Source:
Prepared by
the authors
using ACLED
Data.
 Frequency and composition of conflict (violent) events changed considerably since
November 2020 (the onset of the war in Northern Ethiopia)
 Frequency - almost twice as many of these events occurred in the latter period.
 Composition – incidence of battles rose more than five-fold (due to the war), the
number of events involving ‘violence against civilians’ also rose.
 Spatial distribution – concentrating in Tigray, Amhara, Afar, and Oromia.

6. Impact of Conflict – Channels
Why should we worry?
Conflict negatively affects welfare directly and through reduced growth.
 Four economic effects (Collier (1999))
 Destruction – human, physical, natural resources (mortality or
morbidity, damage or destruction physical and natural assets such as
factories, roads, power stations …)
 Disruption – interruption of normal order of business including
movement of goods/people and provision of services due to breakdown
of infrastructure/insecurity …
 Diversion – reallocation of public and private resources away from
output-enhancing activities.
 Dissaving – reduction or lower rate of accumulation of assets
including running down financial savings, capital flight, postponed
investment, migration
 Psychosocial effects: psychological consequences due to exposure to
conflict (mental and emotional wellbeing, the environment, and behaviour)

7. Impact of Conflict on Growth – Illustration from Ethiopian History
-8.0 -8.3 -8.3
-6.6
-4.7
-10.0
-5.0
0.0
5.0
10.0
15.0
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
%
Year
Growth of GDP per capita (1951-2021) (%)
Source: Authors’ computation using data from The Conference Board (2021).
Duration and intensity matters

8. Role of Policy Research
 Identifying costs
 Direct costs – costs directly and contemporaneously attributable to
conflict including mortality and morbidity; destruction of productive
capital and infrastructure (farms, factories, machinery and equipment,
education and health facilities, other public infrastructure); damage to
personal property (housing, vehicles, and others); and the budgetary
cost of war …
 Indirect costs – costs attributable to circumstances and responses
induced by conflict including population dislocation, reduced production,
trade disruption, lower current and future physical investment, decline
in educational opportunities and health coverage, migration, including
brain drain, and decreased tourism.
 Immediate vs. accumulated costs
 Outcomes – reduced economic growth and welfare (lower productivity,
higher prices, decreased employment, and lower incomes);
 Macroeconomic indicators, such as GDP and private consumption, can
serve as summary measures of the cost of conflict.

9. Role of Policy Research
 Measuring costs
 Obtaining the relevant data
o Direct costs – observed and most from Federal and Regional
governments reports (estimated values of productive capital,
infrastructure, and public service facilities destroyed; uncultivated
land; government budget; and national accounts and balance of
payments data – usually incomplete, scattered, ….
o Indirect costs – ‘unobserved’ (counterfactuals) and accumulate
over time (discounting).
 Counterfactuals
o Express what would have happened in the absence of conflict.
o Cost (impact) = the difference between counterfactual outcome and
the corresponding simulated (or actual) outcomes under conflict
o Modelling is used to construct the counterfactuals.

10. Role of Policy Research
 Measuring costs (continued)
 Modelling
o Computable General Equilibrium (CGE) – to assess the potential
growth and welfare effects of conflict/shocks via the CGE
modeling-based simulations or scenario-building.
o Microsimulation model – to assess the effect on household incomes
and poverty.
o Synthetic control – uses pre-conflict data on units unaffected by the
conflict
o CGE and microsimulation can be used to explore recovery
scenarios and their implications.
 Identify and assess recovery options
 Assess recovery options – speed and cost of recovery;
 Measure the size of investments required for recovery;
 Explore policy instruments available for recovery – tax system, public
investment, regulation, social protection, …

11. Role of Policy Research
 Findings (highlights)
 considerable rise in government recurrent expenditure;
 substantial reductions in levels and growth rates of GDP and private
consumption during the conflict period and subsequent years;
 fall in household incomes;
 poorer households face larger reductions;
 rise in poverty and inequality (marginally);
 Knowledge gap and action going forward
 Assesses recovery options;
 the psychosocial effects of conflict and related impact of recovery and
resilience
 the root causes of conflict in the country are critical priority areas for
research, policy analysis, and collective action
 the symbiotic link between conflicts and the country’s vulnerability to
economic, natural (environmental), and political shocks and stressors

12. Thank You