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.