Commodity Price Shocks and Civil Conflict: Evidence from Colombia

Oeindrila Dube, Harvard University and Juan Vargas, Universidad del Rosario
November 12, 2008

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.
The paper exploits exogenous price shocks in inter-
national 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) and natural
resources (which are capital intensive). We focus on coffee and oil, the
two largest exports. We found that a sharp fall in coffee prices in the 1990s
increased violence differentially in regions growing more coffee, by lower-
ing wages and the opportunity cost of joining armed groups.
In contrast, a rise in oil prices increased violence differentially in the oil region, by increasing municipal revenue siphoned through rapacity. This pattern holds in several other agricultural and natural resource sectors, providing robust evidence that price shocks affect conflict in opposite directions depending on the factor intensity of the commodity.

The full paper can be viewed at http://www.cgdev.org/doc/events/1.28.09/Dube_commodities_conflict.pdf