Cespic Working Paper 2020/02
Raul Caruso, Jon Echevarria
This paper presents first a theoretical model of conflict between two parties in a two-sector economy. In a ‘contested’ sector, they struggle to appropriate the maximum possible fraction of a contestable output. In an ‘uncontested’ sector, they hold secure property rights over the production of some goods. Parties split their resource endowment between ‘butter’, ‘guns’ (in the contested sector) and ‘ice cream’ (in the uncontested sector). The model predicts that the level of guns depends positively on the relative price of goods produced in contested and those produced in the uncontested sector. As the relative price decreases actors decrease their outlays in ‘guns’. The empirical section is focused on a panel of Sub-Saharan African countries for the period 1980-2017. Results show that international prices of manufactures (interpreted as the uncontested ice-cream sector) are negatively associated with arms imports and military expenditure so confirming the theoretical prediction. The results appear to be robust. In addition, we have checked whether world prices have an impact on the probability of an armed conflict. We found that internal and internationalised civil conflicts react differently to world prices.