Bancarization and Violence in Colombia

Abstract

Income shocks affect violence through the opportunity cost and rapacity effects. Existing studies focus on the impact of transitory shocks, especially commodity price innovations. This paper builds on this literature and studies the causal effect of permanent income shocks on armed conflict in Colombia. Using a rich dataset reporting all guerrilla and other armed groups' attacks by municipality between 2009 and 2014 and information on the provision of banking services, it shows that increasing bancarization leads to reductions in violence. These results have important implications for public policy in countries with a long history of violence. They suggest that promoting financial inclusion is useful for reducing conflict.