Commodity Price Shocks and Civil Conflict: Evidence from Colombia

Abstract

This paper explores how commodity price shocks in the international market affect armed conflict. Using a new dataset on civil war in Colombia, we find that exogenous price shocks in the coffee and oil markets affect coflict in opposite directions, and through separate channels. A sharp fall in coffee prices during the late 1990s increased violence dispro- portionately in coffee-intensive municipalities, by lowering wages and the opportunity cost of recruitment into armed groups. In contrast, a rise in oil prices increased conflict in the oil region, by expanding local government budgets and raising potential gains from rapacity and predation on these resources. Our analysis suggests that the price of labor intensive goods affect conflict primarily through the opportunity cost effect, while the price of capital intensive goods affect conflict through the rapacity channel.