Working Paper: CEPR ID: DP16454
Authors: Andrea Tesei; Jrgen Juel Andersen; Frode Martin Nordvik
Abstract: We reconsider the relationship between oil and conflict, focusing on the location of oil resources. In a panel of 132 countries over the period 1962-2009, we show that oil windfalls escalate conflict in onshore-rich countries, while they de-escalate conflict in offshore-rich countries. We use a model to illustrate how these opposite effects can be explained by a fighting capacity mechanism, whereby the government can use offshore oil income to increase its fighting capacity, while onshore oil may be looted by oppositional groups to finance a rebellion. We provide empirical evidence supporting this interpretation: we find that oil price windfalls increase both the number and strength of active rebel groups in onshore-rich countries, while they strengthen the government in offshore-rich ones.
Keywords: Natural Resources; Conflict
JEL Codes: O13; D74; Q34; Q35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| oil price increase (Q31) | probability of conflict escalation (onshore-rich countries) (Q34) |
| oil price increase (Q31) | probability of conflict escalation (offshore-rich countries) (D74) |
| onshore oil wealth (L71) | capacity of rebel groups (D74) |
| offshore oil wealth (L71) | government strength (H11) |
| share of onshore oil > 38% (L71) | overall impact shifts from reducing to increasing probability of conflict escalation (D74) |
| oil price shocks (Q43) | conflict escalation (onshore producers) (D74) |
| oil price shocks (Q43) | conflict de-escalation (offshore producers) (D74) |