Contractual Relationships and Ethnic Violence: Theory and Evidence from Kenyan Flowers Exports

RESEARCH QUESTION

What are the consequences of political violence and conflict on exporting firms? What are the mechanisms through which violence affects firm behaviour? How do firms react and adapt to a context of ethnic and political violence. What characteristics of firms, such as whether they export to auctions or through direct relationships, influence their reaction? We ask these questions in the particular context of the flower industry in Kenya and the recent post-election violence.

PROJECT

While the recent economic literature on civil conflict (see Collier and Hoeffler, 2004) has mainly studied the causes of ethnic violence and conflict, relatively little is known about the economic consequences of violence and conflicts at the micro level. This gap in knowledge is especially pronounced when it comes to understanding the effects of conflict and violence on firms. Yet, firms are likely to be affected by violence and insecurity and to react to mitigate the impacts.
This project studies the effects of the recent Kenyan post-electoral violence on the export performance of the Kenyan flower industry.

The project therefore focuses on a clearly defined short instance of violence and asks three main questions. First, what are the consequences of political violence and conflict on firm performance and behavior? Second, what are the mechanisms through which violence affects firm performance and behavior? Third, how do firms react to the political instability and conflict and how might this depend on the value they place on the relationship they have with their buyers?

To this end, the project conducted surveys of Kenyan flower exporters in July-September 2008, focussing on the effects of the post-election violence. It compiled export records of export transactions by Kenyan flower exporters and linked this with information on the incidence of violence.