Economics and Violent Conflict

Macartan Humphreys
Feb 2003

This essay reviews recent research on the relationships between economies and violent conflict. The type of economic policies that governments choose plays a significant role in determining the likelihood of conflict. Policies that induce conflict may result from deliberate decisions to weaken state institutions so that leaders can more easily enrich themselves. Sometimes however conflict may result from attempts to increase economic efficiency. There is for example ample anecdotal evidence about how the World Bank and IMF’s structural adjustment programs of the 1980’s and 1990’s spawned civil conflicts. This review however has found no systematic support linking structural adjustment to war. It begins by considering the economic factors that make some societies susceptible to conflict. One of the main factors is poverty, though this is mostly a feature in civil wars, not international ones. Economic growth is also associated with lower levels of conflict. Thus, policies that aim to promote growth in developing countries are, in effect, also likely to act as agents for conflict prevention. However, although wealth reduces the chances of conflict, the rise in global economic prosperity throughout the 20th Century has corresponded with an increase rather than a fall in the number of civil wars. This is likely due to the rise in other conflict-inducing factors, such as population levels, and the fact that global growth has been unbalanced. Another feature of economies that is often related to levels of conflict is trade. There is strong evidence that countries that trade with each other are less likely to fight each other, though no comparable work has yet been Also considered is whether violent conflict is caused by undertaken on the effects of internal trade. economic inequality. Statistical research has not found evidence for such a relationship, though that may be because researchers are not working with the right data. While qualitative studies suggest that inequality between regions or groups – known as “horizontal inequality” – is what matters for violent conflict, econometric research has used a measure of “overall inequality” – that is, inequality between individuals irrespective of their group membership The two types of inequality need not be in any way correlated. Also covered in this essay is research that has been undertaken on the ways in which economies function once violent conflicts have broken out, including attempts to quantify the economic costs of conflicts. Some conflicts reduce the levels of investment within zones where fighting takes place; others spur technological innovation and growth. Different studies have tried to estimate aggregate costs and benefits of conflict, using a model of economic production that uses information on levels and rates of change of physical capital, population, human capital, and “total factor productivity.” No study however has yet measured the aggregate costs that arise from all these different channels. And while recent work has focused much on looting activities of groups there has not been much work studying the effects those activities have on economic producers. The ways in which economies are structured is also found to matter. Countries that depend on the sale of primary commodities, for example, are more likely to have wars. In particular the role of natural resources, such as oil and diamonds, has been widely discussed but there is a lack of consensus on the nature of their relationship to conflict. Researchers at the World Bank suggest that natural resources lead to wars because greedy citizens take up arms to capture them. But there are alternative explanations that are at least as plausible. These explanations suggest alternative policy responses on the part of governments and international organizations. Researchers have also studied the economic behavior of different groups during conflicts. Many have focused on ways rebel groups finance themselves. Some rebels do it by gaining control of natural resources, others are supported financially in part by emigrant populations (although this link is still poorly understood) and from third party sources such as foreign governments. Agricultural production is often as important for rebel financing as natural resources, although it is largely ignored by policy makers. The requirements for financing and the form of financing depend however on the relations between rebel groups and civilian populations. When rebels have popular support, they may benefit from donations in cash or in kind. Otherwise, they may rely on extortion. Unfortunately however, research is relatively sparse on the different ways rebels relate to civilian populations even though such variation is likely to have implications for financing, for forms of peace settlements and for war duration. Some political scientists have tried to distinguish between different types of natural resources in order to explore the mechanisms that link resources to conflict. Their research distinguishes between different commodities based on dimensions such as the extent to which production is centralized, the geographic distances between zones of production and the seat of government, and the extent to which trade in the resource is legal. It has also been argued that the institutional capacity of governments alters relationships between natural resources and conflict. These different lines of research have been developed through the examination of case study evidence, but their conclusions have not been tested using statistical techniques.