UNU-WIDER The Cost of Failing States and the Limits to Sovereignty

In this paper, we estimate the costs of state failure, both for the failing state itself and for its neighbours. In our analysis, the cost of failure arises from two distinct sources: organized violence due to the incapacity of the state to ensure its own citizens' security and low quality of regulation and public goods due to poor governance. To estimate the cost of failure, we proceed in two steps. First we estimate the annual loss of growth induced by state failure. Then we cumulate this loss over time, taking into account the chances that each year a failing state will exit this status. Our growth estimations suggest that a failing state at peace loses 2.6 percentage points of growth per year, while violence induces a further loss of 1.6 percentage points of growth per year. ...