Armed Conflict and Firm Performance: Evidence From the 2008 Georgia-Russia Conflict

This paper examines how a brief armed conflict affects firm performance and survival, using evidence from Georgia following the August 2008 war. Combining firm-level survey data with geolocated information on conflict events, military installations and bank branches, the analysis reveals heterogeneous firm responses. In the short run, firms located near conflict events experienced smaller declines in sales and sales per permanent, full-time employee than nonexposed firms, despite substantial losses among young firms and exporters closest to the bombing. By 2011, surviving exposed firms outperformed nonexposed survivors in sales and labour productivity. At the same time, local armed conflict exposure increased firm exit, particularly among exporters, pointing to selective exit, reduced competition and transport disruptions as mechanisms driving the results.