This paper evaluates the extent to which war-related
psychological distress causes poverty. The endogeneous nature of
mental distress is addressed by using exposure to the civil war in
Mozambique as an instrument. It is found that exposure to war has a
significant and positive long-lasting impact on mental distress.
Furthermore, the causal impact of war-related psychological distress
on income and wealth is shown to be significant, negative, and nonnegligible.
One standard deviation increase in mental distress
decreases income by half a standard deviation. These findings are
robust to alternative specifications, including the use of an
alternative database on the incidence of PTSD in Mozambique.