Economic Shocks and Conflict: Evidence from Commodity Prices
51 Pages Posted: 23 May 2013
Date Written: March 22, 2013
Higher national incomes are correlated with lower political instability. We test three theories linking income to conflict using a new database of export price shocks. Price shocks have no effect on new conflicts, even large shocks in high-risk nations. Rising prices, however, lead to shorter, less intense wars. This evidence contradicts the theory that rising state revenues incentivize attempts at capture, but accords with two theories: that rising revenues improve state counter-insurgency capacity and reduce individual incentives to fight in existing conflicts. Conflict onset and continuation follow different processes. Ignoring this time dependence generates mistaken conclusions about income and instability.
Keywords: income shocks, political instability, fragile states
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