Economic Recovery and Social Cohesion: A Field Experiment with Capital Grants in Post-Conflict Iraq

How does the uneven distribution of economic recovery affect social cohesion after war? While new economic opportunities can bind communities together, inequality may generate resentment among those left behind. We study a $2,000 capital grant program in post-conflict Iraq, measuring economic outcomes and seven dimensions of social cohesion. We designed a randomized controlled trial to identify the direct effects of the grants among beneficiaries and indirect effects on their first-degree social ties and professional peers. Beneficiaries experience large economic gains that strengthen over time (a 24.6 percentage point increase in business ownership and 0.81 SD higher business revenues by twelve months), alongside improved trust and reduced grievances and perceived competition toward their community. Early increases in trade, debt, and transfers between beneficiaries and their professional peers, consistent with local sharing norms, fade by twelve months. Social ties and professional peers report persistent directed grievance toward the specific beneficiary with whom they are connected (−0.21 SD for professional peers, −0.18 SD for social ties; q < 0.01 at both six and twelve months), but no changes in directed trust and contact allow us to rule out an overall deterioration in dyadic relationships. Their general attitudes and behaviors toward the broader community, including trust, civic engagement, and inclusion, are unchanged across both waves, with 95% confidence intervals excluding indirect exposure effects larger than 0.20 SD. These results show that the social cost of uneven recovery is concentrated in directed, tie-level perceptions rather than in non-recipients’ general attitudes.

Keywords: social cohesion; post-conflict recovery; capital grants; small and medium enterprises; randomized controlled trial; indirect exposure effects; grievance; trust; Iraq.