# **5 Conclusions**

Our analysis, covering 89 developed and developing countries from 2006 to 2019, offers a unique perspective on the effects of conflict on firm activity. By leveraging harmonized firm-level data, we document several empirical regularities that hold across different settings and contexts. The global scope of our analysis enables cross-country comparisons, providing novel insights and a more comprehensive understanding of how conflict affects firm performance across the world.

Our results show that higher exposure to conflict reduces both firm sales and production costs. Conflict disrupts access to domestic and imported intermediate inputs and raw materials, forcing firms to scale down production, which in turn lowers sales. Sales are further depressed by intensified competition from informal firms. While reduced output drives down production costs through lower input purchases, firms also respond to conflict by cutting labor costs—substituting skilled workers with unskilled ones. As a result of these adjustments in both sales and costs, the average effect of conflict exposure on profits is null. However, the estimated effect on profits is consistently negative and statistically significant in countries with specific characteristics.

A key advantage of our global analysis is that it allows us to provide novel evidence on how economic, social, and political country-level characteristics shape the effect of conflict on firm behavior. We find that the impact of conflict exposure is more severe for firms operating in countries with high trade openness, low economic complexity, weak bureaucratic quality, illicit drug production, and those initially at peace. In these contexts, conflict leads to substantial declines in both sales and profits. Finally, we show that the relative importance of the mechanisms through which conflict affects firm performance also varies systematically with country characteristics.

Three policy implications emerge from our analysis. First, the quality of government institutions plays a critical role in helping firms cope with the adverse effects of conflict. Our findings highlight the importance of investing in state capacity and bureaucratic capabilities, particularly in settings characterized by high conflict risk. Second, economies with low complexity and high trade openness—typical of many developing countries reliant on a few primary sectors—are more severely affected by conflict. Policies that promote economic diversification, local input sourcing, and infrastructure development can enhance resilience to external shocks, including political violence. Third, the economic costs of conflict are disproportionately high for firms in countries that are initially at peace. This implies that, although early interventions to preserve peace—such as targeted diplomacy, inclusive political institutions, or conflict-sensitive development assistance—may be costly and complex, they can yield substantial returns. Our results suggest that both domestic policymakers and the international community should invest in conflict prevention, as the economic value of maintaining peace is significant, both within and across countries.

24