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School of Economics and Finance

No. 810: Oil and Civil Conflict: On and Off (Shore)

Jørgen Juel Andersen , Norwegian Business School
Martin Nordvik , Norwegian Business School and Centre for Applied Macro- and Petroleum Economics (CAMP)
Andrea Tesei , Queen Mary University of London, CEP (LSE) & CEPR

January 1, 2017

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We reconsider the relationship between oil and conflict, focusing on the location of oil resources. In a panel of 132 countries over the period 1962-2009, we show that oil windfalls increase the probability of conflict in onshore-rich countries, while they decrease this probability in offshore-rich countries. We use a simple model of conflict to illustrate how these opposite effects can be explained by a fighting capacity mechanism, whereby the government can use offshore oil income to increase its fighting capacity, while onshore oil may be looted by oppositional groups to finance a rebellion. We provide empirical evidence supporting this interpretation: we find that oil windfalls increase both the number and strength of active rebel groups in onshore-rich countries, while they strengthen the government in offshore-rich ones.

J.E.L classification codes: O13, D74, Q34, Q35

Keywords:Natural resources, Conflict