How do civil wars disrupt trade and investment?

Civil wars disrupt trade and investment primarily by undermining the stability and functionality of the state, creating an environment where normal economic activity becomes difficult or impossible to sustain.1

When state authority weakens, the resulting insecurity discourages both domestic and foreign investment, as the risks associated with property rights and physical safety increase significantly. Furthermore, civil wars often lead to the destruction of infrastructure and the disruption of supply chains, which directly hinders trade.21

In many cases, the economic landscape shifts from productive enterprise to predatory behavior. Insurgencies may thrive by seizing control of natural resources or engaging in looting, which replaces legitimate commerce with conflict-driven extraction. Additionally, economic crises—often exacerbated by the conflict itself—reduce the opportunity cost for individuals to join insurgencies, as the potential for gain through violence or control of resources outweighs the benefits of participating in a collapsed formal economy. Ultimately, the erosion of state capacity and the prevalence of violence create a cycle that stifles long-term economic development and discourages the capital flow necessary for trade.12