Rebuilding Economic Stability in Colombia

Peace or Prosperity? Unpacking Colombia's Economic Puzzle

Soraya Malik in Global Affairs August 2025 • 4 min read.

"Why did the promise of economic dividends after Colombia's peace agreement fail to materialize, and what lessons does this hold for global peace-building efforts?"

In an increasingly turbulent world, the pursuit of lasting peace is more critical than ever. While peace agreements are vital for ending conflicts, the real challenge lies in ensuring these agreements translate into tangible improvements in people's lives, especially economic prosperity. The recent resurgence of armed conflicts globally underscores the urgent need for durable peace, and the effectiveness of peace agreements is paramount.

Colombia’s 2016 peace agreement between the government and the Revolutionary Armed Forces of Colombia (FARC) was a landmark achievement, ending one of the world's lengthiest and most violent armed conflicts. The agreement aimed to bring not only peace, but also economic development to conflict-affected regions. With high expectations and international recognition, the agreement was seen as a model for conflict resolution.

However, the economic aftermath of the Colombian peace agreement has been puzzling. While violence significantly decreased in former FARC-controlled areas, anticipated economic benefits largely failed to materialize. This article delves into the complexities of this economic puzzle, examining why peace did not automatically translate into prosperity, and what crucial lessons this holds for peace-building efforts worldwide.

The Elusive Economic Dividend: Colombia's Peace Agreement Examined

Rebuilding Economic Stability in Colombia

A recent study by Miguel Fajardo-Steinhäuser, an economist at the London School of Economics, sheds light on the economic impact of Colombia's peace agreement. The study evaluates the economic effects of the peace agreement between the Colombian government and the FARC, comparing municipalities that historically had a FARC presence with those that had a presence of the smaller guerrilla group, the ELN. Fajardo-Steinhäuser's research reveals a complex picture, challenging assumptions about the automatic economic benefits of peace.

The study found that violence indicators significantly decreased in historically FARC municipalities following the unilateral ceasefire declared by the FARC in December 2014. This ceasefire was a crucial step in the peace negotiations. Despite this substantial reduction in violence, the study found little to no effect on several economic indicators, suggesting that the peace agreement did not boost economic activity in these areas.

Violence Reduction: Violence indicators saw significant and measurable decreases in municipalities historically dominated by the FARC.
Economic Stagnation: Despite the drop in violence, numerous economic indicators showed precisely estimated null effects, signifying the peace agreement had no impact on economic activity.
Policy Ineffectiveness: An examination of the flagship firm and job creation program in conflict-affected regions revealed that the policy also had precisely estimated null effects on similar economic indicators.

Further analysis explored why these historically FARC municipalities could not capitalize on the reduction in violence. The study suggests a critical factor: a lack of state capacity. This deficiency, stemming from both low initial levels of state capacity and the absence of increased state presence after the ceasefire, hindered the ability of these municipalities to translate peace into economic gains.

Lessons for Global Peace-Building

Colombia's experience offers invaluable lessons for peace-building efforts worldwide. The study underscores that peace agreements alone are insufficient to guarantee economic prosperity in conflict-affected areas. Complementary investments in state capacity are essential to ensure that peace translates into tangible economic benefits, ultimately fostering long-term stability and resilience. As the world grapples with ongoing and emerging conflicts, these insights can inform more effective strategies for building lasting peace and shared prosperity.

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This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2301.01843,

Title: Peace Dividends: The Economic Effects Of Colombia'S Peace Agreement

Subject: econ.gn q-fin.ec

Authors: Miguel Fajardo-Steinhäuser

Published: 04-01-2023

Everything You Need To Know

What were the primary goals of the 2016 peace agreement between the Colombian government and the FARC?

The 2016 peace agreement between the Colombian government and the Revolutionary Armed Forces of Colombia (FARC) aimed to end one of the world's longest and most violent armed conflicts. Besides ending the conflict, the agreement explicitly targeted economic development in conflict-affected regions, intending to bring not only peace but also tangible economic improvements to the lives of the people in those areas.

How did the economic outcomes in historically FARC-controlled areas differ from what was expected following the peace agreement?

Contrary to expectations, the peace agreement did not automatically translate into economic prosperity in historically FARC-controlled municipalities. While violence significantly decreased after the FARC declared a unilateral ceasefire in December 2014, economic indicators showed precisely estimated null effects. This suggests that the peace agreement, despite its success in reducing violence, did not boost economic activity or bring about the anticipated economic benefits in these areas.

What specific economic indicators were examined in the study by Miguel Fajardo-Steinhäuser, and what were the findings regarding their performance post-agreement?

The study by Miguel Fajardo-Steinhäuser evaluated various economic indicators in municipalities with a historical presence of the FARC compared to those with the ELN. The analysis revealed that, despite a reduction in violence, numerous economic indicators showed no significant change. These included measures of economic activity, implying that the peace agreement did not lead to economic growth or improvement in these specific regions. The flagship firm and job creation programs also showed precisely estimated null effects.

Why did the reduction in violence not lead to economic prosperity in the municipalities formerly controlled by the FARC, according to the study?

The study suggests that the lack of economic prosperity in formerly FARC-controlled municipalities, despite reduced violence, was primarily due to a lack of state capacity. This deficiency stemmed from both low initial levels of state capacity and the absence of an increased state presence after the ceasefire. The inability of these municipalities to leverage peace into economic gains highlights the critical role that state presence and capacity play in fostering economic development after a peace agreement.

What crucial lesson does the Colombian experience offer for global peace-building efforts, and what are the implications?

The Colombian experience underscores that peace agreements alone are insufficient to guarantee economic prosperity in conflict-affected areas. The study emphasizes the importance of complementary investments in state capacity. This is essential to ensure that peace translates into tangible economic benefits, fostering long-term stability and resilience. The implication is that peace-building efforts must include strategies to build state capacity, such as improving governance, providing basic services, and promoting economic development, alongside efforts to end conflicts. These efforts are crucial for achieving lasting peace and shared prosperity worldwide.