extra percent of French West African workers increases the (negative) impact of violent conflict by almost one percentage point. In aggregate, this effect corresponds to a 7% reduction in TFP over the sample period.

# **6.3 Channels of impact and robustness checks**

This section presents results from several tests to disentangle the potential mechanisms through which conflict affects TFP and other robustness checks. Table 9 reports results on channels of impact. Specifically, we consider demand effects and effects on operating costs. Table 10 includes results from a set of robustness checks in various sub-samples.

As noted above, our TFP measure likely picks up changes in mark-ups (see section 5.1). Hence, the result that TFP of foreign firms are decreasing more than domestic firms might be driven by changes in both efficiency and demand. Since income as a whole for the population was decreasing, it is likely that domestic demand for goods and services produced by the formal sector was also falling. Therefore, firms that export part of their products might fare better than those depend solely on the domestic market. On the other hand, it is possible that trade in general and exporting firms suffer from instability. We test for which effect is stronger by interacting an indicator of export orientation with foreign employment and the conflict dummy in the before-after regression in equation (8). Since we do not have trade data at the firm level, we use aggregate data from the INS to calculate an industry export orientation index before the conflict.<sup>32</sup> The coefficient estimates on the variables of interest are reported in table 9, column 1. The interaction between foreign employment and the conflict dummy is still significant and of similar magnitude while the coefficients on export interacting with conflict and foreign employment are insignificant, suggesting exporting has no net effect on all firms.

Another possibility is that firms with different market power would see different changes in profits which is reflected in TFP. To test whether this channel is operating, we control for an indicator that equals one for firms belonging to a highly concentrated industry at the beginning of the sample period (1998). An industry is defined as high concentration when its Herfindahl index - defined as the sum of squared market shares in value added - is larger than 1.4, or approximately in the seventy-fifth percentile of the sample. We then control for this variable in an analogous way as the export orientation variable before. The results are in column 2. The concentration dummy interacted with foreign employment and conflict is insignificant, suggesting that productivity loss for foreign firms are present in both high and low concentration industries.

Another channel through which trade may affect firms is if they use imported inputs, which might

> 32We calculate the share of exports over total output at two-digit industry level in 1999 since we only have aggregate data from the INS for two years 1999 and 2004. In principle, we can use trade data from other sources such as COMTRADE to calculate export and import shares at the ISIC 4-digit level and for all years. However, this approach does not work because we were unable to match the industry indicator for more than 60% of the firms in our data with the COMTRADE data. Approximately half of the industries (in terms of number of firms) do not export in 1999 so we define export orientation as a dummy variable indicating non-zero exports at the industry level.

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