Geographical Exposure to Conflicts and Firm Performance: Evidence from The MENA Region

This paper assesses the impact of insecurity generated by conflicts on firm performance in the Middle East and North Africa (MENA) region. It contributes to the literature in three ways. First, we try to identify the local effect of conflicts using a geospatial approach where we evaluate the exposure of each firm and its shipment routes and infrastructures to conflictual events overtime in a specific location. Second, from a methodological perspective, we adopt a simple methodology – new to the literature- to identify the within-firm effect. To do so, we use two series of information on performance (measured by sales and labor productivity) on the current year t and year t-2, both being reported in the same World Bank Enterprise Survey (WBES) conducted for a country in year t. Third, large datasets from the WBES for six non-oil countries (Egypt, Jordan, Lebanon, Palestine, Tunisia and Morocco) were merged with geospatial measures to conflicts. Key findings show that battles and explosions negatively and robustly affect sales and productivity, all the more so for small and mid-sized firms. Nevertheless, we do not find robust effects of exposure to protests, riots and violence against civilians across different measures of the performance of firms and conclude for further research on these issues.