Nigeria has witnessed incessant incidents of conflict-related violence in recent years. This paper seeks to investigate how conflicts affect state capacity in term of growth in GDP per capita and tax per GDP ratio, and to examine the potential spill over effect of conflict in neighbouring state. The System Generalised Method of Moments (GMM) technique is employed for a panel data of 37 states in Nigeria over the period 2000 to 2013. Our main results show that increase in incident of conflict reduces state capacity, with more negative effect on growth than tax. We also find evidence that states suffer weaker growth and loss of tax revenue because of conflict in adjacent states due to spill over effect of conflict. The difference-in-differences method is used to unravel the net effect of conflict in the Boko Haram afflicted states relative to other states. The findings suggest that individuals living in states heavily affected by Boko Haram experienced a negative change in state capacity, especially in their perception of government provision of health and education, relative to unaffected states between 2008 and 2012.
