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War and natural resource exploitation

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  • Frederick van der Ploeg
  • Dominic Rohner

Abstract

Although the relationship between natural resources and civil war has received much attention, little is known about the underlying mechanisms. Controversies and contradictions in the stylized facts persist because resource extraction is treated as exogenous while in reality fighting affects extraction. We study endogenous fighting, armament, and extraction method, speed and investment. Rapacious resource exploitation has economic costs, but can nevertheless be preferred to balanced depletion due to lowered incentives for future rebel attacks. With private exploitation, rebels fight more than the government if they can renege on the contract with the mining company, and hence government turnover is larger in this case. Incentive-compatible license fees paid by private companies and mining investment are lower in unstable countries, and increase with the quality of the government army and office rents. This implies that privatised resource exploitation is more attractive for governments who have incentives to fight hard, i.e., in the presence of large office rents and a strong army. With endogenous weapon investments, the government invests more under balanced than under rapacious or private extraction. If the government can commit before mining licenses are auctioned, it will invest more in weapons under private extraction than under balanced and rapacious nationalized extraction.

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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 481.

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Date of creation: Mar 2010
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Handle: RePEc:zur:iewwpx:481

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Keywords: Conflict; natural resources; private resource exploitation; mining investment; license fee;

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Cited by:
  1. Tim Willems & Shaun Larcom & Mare Sarr, 2014. "Dictators Walking the Mogadishu Line: How Men Become Monsters and Monsters Become Men," Economics Series Working Papers 701, University of Oxford, Department of Economics.
  2. Enrique Calfucura, 2011. "Natural Resources, Conflict and Democratization," Working Papers, Facultad de Economía y Empresa, Universidad Diego Portales 30, Facultad de Economía y Empresa, Universidad Diego Portales.
  3. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 49(2), pages 366-420, June.
  4. Frederick van der Ploeg, 2012. "Resource Wars and Confiscation Risk," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 097, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  5. Massimo Morelli & Dominic Rohner, 2010. "Natural Resource Distribution and Multiple Forms of Civil War," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 050, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  6. van der Ploeg, Frederick, 2006. "Challenges and Opportunities for Resource Rich Economies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5688, C.E.P.R. Discussion Papers.
  7. Burger, Martijn & Ianchovichina, Elena & Rijkers, Bob, 2013. "Risky business : political instability and greenfield foreign direct investment in the Arab world," Policy Research Working Paper Series 6716, The World Bank.

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