Natural Resources: Curse or Blessing?

24

Some see conflict as reflecting limited capacity of poor countries to put rebellion
down (Fearon and Laitin, 2003) and others as lower opportunity cost of fighting (Collier and
Hoeffler, 2004). It matters whether civil strife and wars result from grievance, a sense of
injustice about how a social group is treated (e.g., systematic economic discrimination), or
greed possibly induced by massive rents of point-source resources as in Angola, Congo and
Sierra Leone (Murshed, 2002; Olsson and Fors, 2004). Furthermore, feasibility is important if
resources lead to ideological leaders being crowded out by opportunistic, rebel leaders
generating the worst civil wars (Weinstein, 2005; Collier and Hoeffler, 2005).

However, cross-country evidence for the effect of resources on conflict suffers from
being confounded by the effects of quality of institutions, rule of law, etc. on conflict. It is
more insightful to examine determinants of conflict at the sub-national level, thus eliminating
such confounding influences. Exploiting variation across four types of violence (guerrilla
attacks, paramilitary attacks, clashes, and war-related casualties) in 900 municipalities during
1988-2005 for Columbia and making use of individual-level wage data from rural household
surveys, a recent study tests the hypothesis that a higher price of capital-intensive
commodities increases the return on capital and lowers wages, so boosts conflict over the
ownership of resource production; conversely, a higher price of labour-intensive commodities
boosts wages and reduces conflict. This hypothesis can be derived from a Heckscher-Ohlin
model of international trade extended with an appropriation sector (Dal Bo and Dal Bo, 2010).
The empirical evidence indeed suggests that the sharp fall in coffee prices in the 1990s has
increased violence in regions growing coffee by lowering wages and opportunity costs of
joining army groups while the sharp increase in oil prices has fuelled conflicted in oil regions
by increasing municipal revenue through rapacity (Dube and Vargas, 2008). Hence, conflict
indeed intensifies if the price of labour-intensive commodities such as coffee, sugar, banana,
palm and tobacco falls but weakens if the price of capital-intensive commodities such as oil,
coal and gold falls. The empirical evidence does not support the hypothesis that the state
colludes with paramilitary groups and protects oil. Also, satellite evidence does not support
the hypothesis that the fall in coffee prices has induced substitution towards coca which led to
more violence in coffee regions; but violent deaths escalated differentially in coca regions
during the 1990s (Angrist and Kugler, 2008).

Worrisome is that the estimated effects of natural resources on the outbreak and
duration of war may be flawed, since it fails to take account of the potential impact of fighting
and armaments accumulation on resource extraction itself. In the face of rebel attacks
rapacious depletion may be favoured by nationalized mining companies to reduce the stake to
be fought over despite its economic costs; furthermore, private mining companies invest less
in unstable countries, especially if their mining investments are not well protected and the
government’s grip on office is weak; also commitment problems lead a government to under-

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