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Price shocks and political conflict

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  • Atallah, Samer

Abstract

How would the recent decline in oil prices affect the political equilibrium in resource exporting countries? This paper investigates the impact of negative price shocks on the emergence of conflict or on maintaining a political bargain in these countries. Conflict is a threat of revolution conducted by ruled citizens against oppressing elites. The probability of a successful revolution depends on the revolution effort exerted by citizens and oppression effort exerted by elites. It is also affected by the level of income inequality. To avoid conflict, citizens and elites bargain to determine an optimal transfer rate from resource rents. Negative price shocks reduce the probability of conflict and increase the probability of a successful bargain between citizens and elites. It also reduces the cost of transfers from elites to citizens. Negative price shocks reduce citizens' welfare. Results of the empirical analysis support the findings of the model. Also, it supports the hypothesis that better institutional quality reduces the effect of price shocks.

Suggested Citation

  • Atallah, Samer, 2017. "Price shocks and political conflict," International Journal of Development and Conflict, Gokhale Institute of Politics and Economics, vol. 7(2), pages 65-80.
    • Handle: RePEc:gok:ijdcv1:v:7:y:2017:i:2:p:65-80
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    More about this item

    Keywords

    political conflict; rent sharing; natural resources; price shocks;
    All these keywords.

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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