The “Resource Curse” posits a positive association between the value of natural commodities and civil conflict. In this paper, we suggest that the value-to-violence relationship differs across commodities, and that the factor intensity of production determines whether a rise in the price of a legally traded good will exacerbate conflict. We exploit exogenous price shocks for coffee and oil to test this hypothesis, using data on politically-motivated violence in Colombia over 1988 to 2004. We find that a drop in coffee prices during the 1990s led to a disproportionate rise in conflict in the coffee areas. Poverty dynamics follow a similar pattern, while substitution into drug crops do not, which suggests that it is the fall in income rather than the drug trade that fuelled this effect. In contrast, we find that oil prices are positively related to clashes with government forces, and that state revenue is used to strengthen military presence in oil areas. Our results suggest that the income channel is critical in determining how price shocks to labor-intensive commodities affect insurgency. However, for capital-intensive goods, the revenue effect predominates in mediating how the value of the commodity affects violence.
WCFIA Working Paper No. 07-01, December 2006.