The Conflicting Outcomes of Food Price Shocks

Given the preponderance of violence and civil conflict in Africa, development practitioners are eager to understand the relationship between economic conditions and conflict. Conflict can negatively impact education, health, and state capacity—all important components of economic growth. While the negative consequences of conflict are clear, the conditions giving rise to conflict are far less so. In a new article, McGuirk and Burke analyze how sudden changes to economic conditions affect the likelihood and type of conflict.

Existing literature theorizes that economic shocks alter the cost of participating in violence, impacting both the spoils of victory and a state’s capacity to deter violence. This yields an unclear relationship between sudden income changes and violent conflict. The authors set out to improve existing literature by examining this relationship using a unique amalgamation of data.

Since poor households spend a large portion of their income on food, the authors use changes in world food prices as a proxy for income changes. The authors also construct price indices using price data from the World Bank and IMF. In general, food price shocks generate opposing effects: increasing the income of producers through higher revenue and decreasing the income of consumers through higher spending. The study confirmed the authors’ suspicions that for producers, a shock in world food prices yields an inverse relationship with factor conflict and a direct relationship with output conflict. For consumers, a price shock yields a direct relationship with both factor and output conflict.

How can these findings be explained? When crop prices increase in food producing areas, factor conflict decreases because violence has become more costly for producers relative to farming. However, as consumers’ income drops from increased spending on food, these customers are likely to appropriate surplus crops in food-producing areas, increasing output conflict. In non-food producing areas, food price shocks increase both factor and output conflict as poor consumers turn to soldiering and looting to compensate for their loss in real income.

It is unsurprising that changes in income shape an individual’s incentives to engage in conflict. However, this study elucidates the ways in which changes in income incentivize different actors in different ways. The evidence suggests that individuals conduct a cost-benefit analysis in response to a price shock, weighing the costs of involvement against the ‘spoils’ of conflict. The authors recognize that conflict can also be driven by non-economic factors, such as political or social grievances.

In response, the authors propose several policy recommendations to assuage the likelihood of conflict in the face of price shocks, including local workforce development programs that shift from urban to rural areas as prices decrease, or insurance schemes that trigger payouts when global prices drop below a certain threshold.

Article source: McGuirk, Eoin, and Marshall Burke. “The Economic Origins of Conflict in Africa.” National Bureau of Economic Research, Issue No. W23056. (2017).

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