Macroeconomic Shocks and Conflict
MacroeconomicShocksandConflict PatcharapornLeepipatpiboon,ChiaraCastrovillari,andTomohideMineyama WP/23/68 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate. TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. 2023 MAR ©2023InternationalMonetaryFundWP/23/68 IMFWorkingPaper Strategy,Policy,andReviewDepartment MacroeconomicShocksandConflict PreparedbyPatcharapornLeepipatpiboon,ChiaraCastrovillari,andTomohideMineyama* AuthorizedfordistributionbyBjörnRotherMarch2023 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. ABSTRACT:Thispapercontributestotheresearchonthemacroeconomicoriginsofconflict.Basedonasampleof133low-andmiddle-incomecountriesovera30-yearperiod,itanalysestowhatextentchangesinacountry’scommodityterms-of-trade(ToT)canexplainanincreaseintheincidenceandintensityofconflictsthroughtheireffectonaggregateincome.Whiletheevidencefrompreviousstudiesonthelinkbetweenmacroeconomicconditionsandconflictisratherinconclusive,wefindasignificantrelationship.OurbaselinemodelfindsthatanegativecommodityToTshockleadstoanincreaseinthenumberofconflicteventsandfatalities.Moreover,theeffectplaysoutoverseveralyearsalbeitwithdecreasingstrengthafterthesecondyear;anditsmagnitudeistwiceaslargeforLow-IncomeCountriesandFragileandConflict-affectedStateswhencomparedwiththesampleaverage.Inaddition,ourresultsshowthatmacroeconomicshocksarecreatingmoreviolenceincountrieswithhigherinequalityandincaseswherefiscalpolicyfacesrelativelystrongerconstraintsonfinancingaresponsetotheinitialshocktoincomes.Ourresultsarerobusttoanumberofplausiblevariationsinmodelspecification.Thepaper’sresults,inconjunctionwithpreviousstudiesthatemphasizetheeconomiccostofconflicts,suggestthepresenceofafragilitytrap—aviciouscycleofworseningeconomicconditionsanddeterioratingconflicts.Effectivepoliciesandwell-tailoredexternalfinancialsupportcouldbeexpectedtohelpcountriesaddressthischallenge. RECOMMENDEDCITATION:Leepipatpiboon,Patcharaporn,ChiaraCastrovillari,andTomohideMineyama.2023.MacroeconomicShocksandConflict.IMFWorkingPapersWP/23/68. JELClassificationNumbers: D72,D74,O11 Keywords: Conflict;terms-of-tradeshock;commodityprices;low-incomecountries;fragileandconflict-affectedstates;spillover Author’sE-MailAddress: patchl@g.ucla.edu;CCastrovillari@imf.org;TMineyama@imf.org WORKINGPAPERS MacroeconomicShocksandConflict PreparedbyPatcharapornLeepipatpiboon,ChiaraCastrovillari,andTomohideMineyama1 1ThisprojectstartedwhenPatcharapornLeepipatpiboon,whoiscurrentlyattheUCLA,wasaninternattheIMF.ChiaraCastrovillariandTomohideMineyamaareIMFstaffmembers.TheauthorswouldliketothankTohidAtashbar,JocelynBoussard,FabianBornhorst,YoroDiallo,DaehaengKim,KenjiMoriyama,RyotaNakatani,BjörnRother,AnnalauraMariaSacco,MartaSpinella,BilalTabti,AlunH.Thomas,MaxwellTuuli,andseminarparticipantsattheIMFforhelpfulcommentsandsuggestions.SpecialthanksgotoFranckBousquet,PaulMaximilianBisca,MaditaWeise,andtheFCScoreteammembersattheIMFforinsightfulcomments,generoussupport,andencouragements.TheanalysisofthispaperwasalsoinspiredbydiscussionswithMasoodAhmed,ShantaDevarajan,andAbebeAemroSelassie.TheviewsexpressedinthispaperarethoseoftheauthorsanddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. Contents ExecutiveSummary5 I.Introduction6 II.LiteratureReview8 III.DataandEmpiricalStrategy10 3.1Data10 3.2TransmissionChannels15 3.3EmpiricalStrategy17 IV.Results18 4.1BaselineSpecification18 4.2EvolutionofConflictdyads19 4.3CountriesatRisks19 4.4TrackingtheTransmissionChannels21 4.5TestingforSpilloversAcrossCountries23 V.RobustnessCheck24 5.1AlternativeSpecifications24 VI.ConcludingRemarks28 AnnexI.ListofCountriesforEmpiricalAnalysis30 AnnexII.VariablesusedforEmpiricalAnalysis34 References36 FIGURES Figure1:TotalNumberofConflictEventsintheUCDPGED6 Figure2:SelectedCommodityPrices7 Figure3:NumberofConflictEventsperoneMillionInhabitants,202111 Figure4:CommodityTermsofTradeinSelectedCountries,202113 Figure5:PotentialChannelsofToTShockEffectsontheIncidenceandIntensityofConflict16 Figure6:ResponsesoftheNumberofConflictEventstoaCommodityToTShock,BaselineSpecification18 Figure7:ResponsesofContinuationandEntryofConflictdyads19 Figure8:ResponsesoftheNumberofConflictEvents,ComparisonofIncomeGroups20 Figure9:ResponsesoftheNumberofConflictEvents,FCSandnon-FCS21 Figure10:HeterogenousResponsesinInequalityandFiscalCapacities22 Figure11:Spillover24 Figure12:AlternativeSpecifications25 Figure13:Additionalcontrols26 TABLES Table1.DescriptiveStatistics14 Table2.Correlations15 Table3.CommodityPriceIndexCorrelations15 Table4.RegressionResultwithAdditionalControls27 ExecutiveSummary Thispapercontributestotheresearchonthemacroeconomicoriginsofconflict.Basedonasampleof133low-an
