The economic effects of a counterinsurgency policy in India: A synthetic control analysis

- We analyze the effects of an anti-Naxalite counterinsurgency policy in India.
- We use the synthetic control methodology.
- The policy is associated with an increase in economic output.
- This increase is particularly in the manufacturing sector.
- The results are robust to placebo checks, difference-in-difference, and triple difference specifications.

Using the synthetic control method, we analyze the economic effects of a unique counterinsurgency response to the Naxalite insurgency in India. Of all the states affected by Naxalite violence, only one state, Andhra Pradesh, raised a specially trained and equipped police force in 1989 known as the Greyhounds, dedicated to combating the Naxalite insurgency. Compared to a synthetic control region constructed from states affected by Naxalite violence that did not raise a similar police force, we find that the per capita NSDP of Andhra Pradesh increased significantly over the period 1989-2000. Further, we find that the effects on the manufacturing sector are particularly strong. Placebo tests indicate that these results are credible and various difference-in-difference specifications using state and industry level panel data further corroborate these findings.