  The last decades have seen a resurgence of armed conflict around the world,
renewing the need for durable peace agreements. In this paper, I evaluate the
economic effects of the peace agreement between the Colombian government and
the largest guerrilla group in the country, the FARC, putting an end to one of
the longest and most violent armed conflicts in recent history. Using a
difference-in-difference strategy comparing municipalities that historically
had FARC presence and those with presence of a similar, smaller guerrilla
group, the ELN, before and after the start of a unilateral ceasefire by the
FARC, I establish three sets of results. First, violence indicators
significantly and sizably decreased in historically FARC municipalities.
Second, despite this large reduction in violence, I find precisely-estimated
null effects across a variety of economic indicators, suggesting no effect of
the peace agreement on economic activity. Furthermore, I use a sharp
discontinuity in eligibility to the government's flagship business and job
creation program for conflict-affected areas to evaluate the policy's impact,
also finding precisely-estimated null effects on the same economic indicators.
Third, I present evidence that suggests the reason why historically FARC
municipalities could not reap the economic benefits from the reduction in
violence is a lack of state capacity, caused both by their low initial levels
of state capacity and the lack of state entry post-ceasefire. These results
indicate that peace agreements require complementary investments in state
capacity to yield an economic dividend.
