Commodity Price Shocks and Civil Conflict: Evidence from Colombia

Country: 
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Publication Year: 
2014
Citation Information: 
forthcoming The Review of Economic Studies
Abstract: 

The link leads to the paper and replication material of Dube and Vargas' paper on commodity price shocks and civil war in Colombia.

Paper abstract:
How do income shocks affect armed conflict? Theory suggests two opposite effects. If labor is used to appropriate resources violently, higher wages may lower conflict by reducing labor 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 paper 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 labor 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.