Journal Article

Commodity Price Shocks and Civil Conflict: Evidence from Colombia

Oeindrila Dube and Juan F. Vargas

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 80, issue 4, pages 1384-1421
Published in print October 2013 | ISSN: 0034-6527
Published online March 2013 | e-ISSN: 1467-937X | DOI: https://dx.doi.org/10.1093/restud/rdt009
Commodity Price Shocks and Civil Conflict: Evidence from Colombia

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  • International Trade
  • Wages, Compensation, and Labour Costs
  • Analysis of Collective Decision-making
  • Economic Development
  • Agricultural Economics

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How do income shocks affect armed conflict? Theory suggests two opposite effects. If labour is used to appropriate resources violently, higher wages may lower conflict by reducing labour supplied to appropriation. This is the opportunity cost effect. Alternatively, a rise in contestable income may increase violence by raising gains from appropriation. This is the rapacity effect. Our article exploits exogenous price shocks in international commodity markets and a rich dataset on civil war in Colombia to assess how different income shocks affect conflict. We examine changes in the price of agricultural goods (which are labour intensive) as well as natural resources (which are not). We focus on Colombia's two largest exports, coffee and oil. We find that a sharp fall in coffee prices during the 1990s lowered wages and increased violence differentially in municipalities cultivating more coffee. This is consistent with the coffee shock inducing an opportunity cost effect. In contrast, a rise in oil prices increased both municipal revenue and violence differentially in the oil region. This is consistent with the oil shock inducing a rapacity effect. We also show that this pattern holds in six other agricultural and natural resource sectors, providing evidence that price shocks affect conflict in different directions depending on the type of the commodity.

Keywords: Income shocks; Conflict; Commodity prices; Natural resources; Q17; F16; J30; O13; D74

Journal Article.  20754 words.  Illustrated.

Subjects: International Trade ; Wages, Compensation, and Labour Costs ; Analysis of Collective Decision-making ; Economic Development ; Agricultural Economics

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