Do Economic and Political Institutions Mitigate the Risk of Natural Resource Conflicts?

Abstract

Despite repeated attempts to model conflict as contests over rent, few researchers have found a persuasive identification strategy to test these models. However, Lei and Michaels (2014) find that exogenous discoveries of “giant” oil fields are in fact associated with increased likelihood of violent conflict. Surprisingly, they do not find any evidence that political decision rules mitigate the effect of natural resource discoveries on the instance of conflict. This paper re-estimates Lei and Michaels’ model to test if their result is dependent on the institutional environment that prevailed at the time of the oil discovery. Results indicate that for conflicts over control of territory, strong economic and political institutions reduce the likelihood of conflict in the wake of the discovery of oil. This empirical finding is consistent with basic theoretical models of violent conflict.

Keywords: Conflict, Civil War, Oil, Natural Resources, Institutions, Conflict Resolution

JEL Classification: Q34, O4, P48, D74