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Key Text The Cost of Failing States and the Limits to Sovereignty

Author: Lisa Chauvet, Paul Collier, Anke Hoeffler
Date: 2007
Size: 17 pages (125 KB)

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Summary

What are the costs of state failure? What implications do these costs have for sovereignty? This paper from the United Nations University World Institute for Development Economics Research estimates the costs of state failure for failing states and their neighbours. It finds that the total cost of state failure is very large and borne mainly by the neighbours of failing states. There may therefore be good reason to vest sovereignty in the region or sub-region rather than the state, empowering international intervention in the process.

There are three distinct types of cost that might define a ‘failing state’. First, there are costs inflicted on citizens of neighbouring states. Secondly, there is violence avoidably suffered by the state’s own citizens. Thirdly, there is poverty avoidably suffered by the state’s own citizens. Where these costs are large there is a basis for qualifying sovereignty because they breach the rights or trigger the responsibilities of other states.

Quantifying the different types of cost associated with state failure shows that each type of cost is large:

Being a failing state at peace significantly reduces the growth rate by 2.6 per cent relative to being at peace with adequate policies and governance. The estimated total cost of being a failed state at peace is US$28 billion.
The estimated net present value (NPV) of losses generated globally by failing states through inadequate policies and governance is US$640 billion.
The incremental loss to growth of a failing state that moves from peace to war is an additional reduction in growth of 1.6 per cent. The loss of gross domestic product (GDP) resulting from civil war in a country that is already a failing state is US$4.8 billion.
The NPV of the cost (including loss of life) of large-scale violence to citizens of failed states is US$144 billion.
Neighbouring a failing state reduces growth by 0.6 per cent. Failing states also inflict further costs on the neighbours of neighbouring states and even globally.
The NPV of the total cost to neighbours of failing states is US$4,732 billion. The annual cost to neighbours of failing states is US$237 billion.

The combined total cost of failing states is around US$276 billion per year, twice what would be generated if OECD countries increased aid to 0.7 per cent of GDP. Implications of the cost of failing states include the following:

The problem of failing states should be at the core of the development agenda. Doubling expenditure on aid would be worthwhile, if it could turn around failing states. However, other instruments may be needed to address the problem.
Improving governance in failing states could have an effect of similar magnitude to that of OECD countries increasing aid to 0.7 per cent of GDP. This suggests that the case for over-riding sovereignty to achieve either of these goals is roughly equal.
The cost of failing states falls mainly on other countries. The case for over-riding sovereignty may be better based on a government’s right to protect its own citizens, than on protecting citizens of failing states.
The costs inflicted by failing states upon other countries fall mainly on neighbouring states. This suggests that sovereignty over a failing state should be vested regionally or sub-regionally.

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Source: Chauvet, L., Collier, P., and Hoeffler, A., 2007, 'The Cost of Failing States and the Limits to Sovereignty', UNU-WIDER Research Paper No. 2007.30
Organisation: World Institute for Development Economics Research of the United Nations University, http://www.wider.unu.edu