Terrorism, banking, and informal savings: Evidence from Nigeria

Conflict-affected societies have lower levels of economic growth. The financial development literature argues that one mechanism behind this is conflict increasing instability, lowering savings. However, the development studies literature highlights that conflict increases precautionary savings. I address this ambiguity arguing that savings do not necessarily fall, rather people opt for informal over formal savings channels as the latter are perceived as vulnerable to conflict. Informal savings are not recorded, explaining why some studies find that savings fall. The analysis uses data from the Nigerian General Household Survey Panel and the Global Terrorism Database with a dose response difference-in-difference model, exploiting variation in terrorism events within 500 5-km-squared locations over 2010–2018. The results confirm my intuition and are robust to several exercises, including to potential bias from heterogeneous time-dependent and dynamic treatment effects. Mechanism analysis suggest that post-conflict changes in risk aversity plays a role. The study ends with policy insights.