Economic decline leads to war–empirics

Commodity price shocks can affect the opportunity costs of engaging in conflict activities. A negative commodity export price shock would lower household income, thus incentivizing households to engage in conflict. Case studies suggest that such a mechanism influenced the outbreak of the First Ivorian Civil War in the 2000s (Woods, 2003; McGuirk and Burke, 2020). In the 1980s and 1990s, Côte d’Ivoire experienced a persistent decline in the price of coffee and cocoa exports – products on which its economy relied heavily. The decline led the state and individual producers to expand their production to compensate for lower revenues. This resulted in competition over land that could be cultivated and the rise of ethnic and religious tensions, which promoted the context for the war. On the other hand, commodity import price increases reduce households’ real income, which also lowers opportunity costs. Schneider (2008) examines news reports and finds that food price increases in 2007 and early 2008 led to the eruption of food riots in more than 20 countries. The effect of a negative commodity ToT shock working through the state capacity channel is also expected to increase conflict intensity. A negative export price shock may lower government revenue, while import price increases may increase the fiscal cost of measures such as subsidies to support the population. And In both cases, the state’s ability to mitigate the economic shock is weakened. For example, Sayne and Hruby (2016) describe that in Nigeria, Africa’s largest oil producer, falling oil revenue due to the oil price slump in 2014 and 2015, compounded by lower investor confidence and exchange rate volatility, constrained the government’s resources to address the expansion of Boko Haram in the northeast regions of the country. Finally, a negative ToT shock resulting from lower export prices would lower the gains to be made through rent capture, thereby decreasing incentives for conflict through the predation channel. Previous studies often report the significance of this channel for the oil and other natural resource sectors (e.g., Ross, 2004). Given the different expected direction of effect, the overall impact of commodity price changes on conflicts is ambiguous ex ante and requires careful regression analysis. How can economic conditions affect the likelihood of conflict? Since conflicts arise from complex political, social, and ethnic contexts, singling out an individual determinant seems infeasible. However, it is plausible to assume that economic factors, such as changes in aggregate income levels, would contribute to the dynamics that foster conflict. For instance, higher inflation would reduce purchasing power, thereby increasing the inclination of individuals to participate in violence. Less opportunities for gainful employment or reductions in salaries and wages may have similar effects. These would be the case especially in situations where governments are lacking the means to effectively mitigate economic hardship as macroeconomic shocks deplete their fiscal coffers. Recent years have seen several major economic shocks on a global scale with a negative effect on output and thus aggregate income, including the Covid-19 pandemic, an increasing number of severe climate events, and Russia’s invasion of Ukraine. The Ukraine war has had a particularly strong impact on households’ purchasing power through its effect on energy, food, and fertilizer prices (Figure 2). Low-Income Countries (LICs) have been hit the most, as they host sizeable populations of poor and vulnerable households while their social safety nets tend to remain underdeveloped (see Rother et al., 2022).