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Globalization and Domestic Conflict

  • Michelle R. Garfinkel
  • Stergios Skaperdas
  • Constantinos Syropoulos

We examine how globalization affects trade patterns and welfare when conflict prevails domestically. We do so in a simple model of trade, in which a natural resource like oil is contested by competing groups using real resources (”guns”). Thus, conflict is viewed as ultimately stemming from imperfect property-rights enforcement. When comparing autarky with free trade in such a setting, the gains from trade have to be weighed against the possibly higher resource costs of conflict. We find that importers of the contested resource gain unambiguously. By contrast, countries exporting the contested resource will lose under free trade, unless the international price of the resource is sufficiently high. Regardless of what price obtains in international markets, countries tend to over-export the contested resource relative to what we would observe if there were no conflict; for some range of prices, the presence of conflict even inverts the country's comparative advantage. We find further that an increase in the international price of the contested resource over an even wider range reduces welfare, an instance of the "natural resource curse".

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1510.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1510
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  1. Dani Rodrik, 1998. "Where Did All The Growth Go? External Shocks, Social Conflict, and Growth Collapses," NBER Working Papers 6350, National Bureau of Economic Research, Inc.
  2. Hotte, Louis & Long, Ngo Van & Tian, Huilan, 2000. "International trade with endogenous enforcement of property rights," Journal of Development Economics, Elsevier, vol. 62(1), pages 25-54, June.
  3. Skaperdas, Stergios, 1996. "Contest Success Functions," Economic Theory, Springer, vol. 7(2), pages 283-90, February.
  4. Chichilnisky, Graciela, 1994. "North-South Trade and the Global Environment," American Economic Review, American Economic Association, vol. 84(4), pages 851-74, September.
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  12. Jose Luis Evia & Roberto Laserna & Stergios Skaperdas, 2008. "Socio-Political Conflict and Eonomic Performance in Bolivia," Working Papers 070814, University of California-Irvine, Department of Economics.
  13. Sachs, J-D & Warner, A-M, 1995. "Natural Resource Abundance and Economic Growth," Papers 517a, Harvard - Institute for International Development.
  14. Mehlum, Halvor & Moene, Karl-Ove & Torvik, Ragnar, 2003. "Institutions and the resource curse," Memorandum 29/2002, Oslo University, Department of Economics.
  15. Bhagwati, Jagdish N & Srinivasan, T N, 1982. "Revenue Seeking: A Generalization of the Theory of Tariffs-A Correction," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 188-90, February.
  16. J. Bhagwati & T. N. Srinivasan, 1979. "Revenue-Seeking: A Generalization of the Theory of Tariffs," Working papers 243, Massachusetts Institute of Technology (MIT), Department of Economics.
  17. Bhagwati, Jagdish N, 1982. "Directly Unproductive, Profit-seeking (DUP) Activities," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 988-1002, October.
  18. Hodler, Roland, 2006. "The curse of natural resources in fractionalized countries," European Economic Review, Elsevier, vol. 50(6), pages 1367-1386, August.
  19. Stergios Skaperdas & Constantinos Syropoulos, 2002. "Insecure Property and the Efficiency of Exchange," Economic Journal, Royal Economic Society, vol. 112(476), pages 133-146, January.
  20. Paul Collier & V. L. Elliott & Håvard Hegre & Anke Hoeffler & Marta Reynal-Querol & Nicholas Sambanis, 2003. "Breaking the Conflict Trap : Civil War and Development Policy," World Bank Publications, The World Bank, number 13938, September.
  21. Shogren, Jason & Margolis, Michael, 2002. "Unprotected Resources and Voracious World Markets," Discussion Papers dp-02-30, Resources For the Future.
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