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returns to capital investment in the formal sector rise, so rent seekers appropriate
proportionately more without destroying the incentive to invest in the formal sector. This
happens if there is sectoral reallocation or if the elasticity of intertemporal substitution is
sufficiently high so that groups do not refrain from excessively increasing appropriation.
Rapacious rent seeking in a Markov-perfect equilibrium outcome of a differential game
lowers the capital left for investment in the formal sector and thus curbs growth. The higher
profitability of investment is more than undermined by each group of rent seekers grabbing a
greater share of national wealth by demanding more transfers. As the number of rent seeking
groups increases, the voracity effect dampens.
Production and resource income have differential impact on armed conflict. Higher
production income makes warfare less attractive and conflict less likely to occur, whereas
higher resource income makes warfare more attractive as there is more to fight over. Indeed,
cross-country evidence suggests a negative relationship between shocks in the growth of
production income and the risk of civil war (Collier and Hoeffler, 2004; Fearon and Latin,
2003; Miguel, et al., 2004) and a positive relationship between resource income and conflict
(Collier and Hoeffler, 2004; Fearon, 2005). The export share of primary commodities is the
largest single influence on the risk of conflict and the effect is nonlinear (Collier and Hoeffler,
2004).13 14 For instance, a country with no resources has a probability of civil conflict of
merely 0.5 percent, but a country with a share of natural resources in GDP of a quarter has a
probability of 23 percent. There is now a growing body of cross-country evidence that rents
on resources and primary commodities, especially oil and other point-source resources,
increase chances of civil conflicts and wars especially in Sub-Saharan Africa through
weakening of the state or financing of rebels, sometimes by corporations. Diamonds (Lujala,
2010), oil (Fearon and Laitin, 2003; Ross, 2004; Fearon, 2005; Humphreys, 2005) and
narcotics (Angrist and Kugler, 2008) especially increase the risk of civil war onsets. Oil
increases the likelihood of conflict, especially separatist conflict. Lootable resources such as
gemstones and drug tend to prolong conflict, but do not increase the chances of the onset of
conflict. There is no evidence for a significant link between (legal) agricultural production
and conflict. It is onshore rather than offshore oil that is more difficult to protect, encourages
rebel groups and increases the risk of violent conflict (Lujala, 2010).
13 Wick and Bulte (2006) show analytically the possibility of a non-monotonic relationship between
resources and conflict intensity. Point-based resources can trigger intense contests but can also
facilitate coordination on peaceful outcomes. They also demonstrate that contesting resources through
violent conflict may yield superior outcomes than contests through rent seeking.
14 Taking account of resource dependence being endogenous to conflict seems to remove the statistical
correlation between resource dependence and conflict onset, since historically conflict-torn societies
become more dependent on resources (Brunnschweiler and Bulte, 2009). Resource abundance (reserves
under the ground) is associated with higher income and reduced chance of onset of war.