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The Economics of Conflict: Theory and Empirical Evidence

The Economics of Conflict: Theory and Empirical Evidence, edited by Karl Wärneryd. The MIT Press, 2014, 304 pp.

The Economics of Conflict is a compilation of scholarly articles selected from among many presented in July 2011 at the CESifo Summer Institute workshop. Subject-matter experts for content refereed all articles through blind review before selection and publication. Each article represents one of nine distinct chapters of the book. The book is the 18th in a series addressing topical economic issues under the auspices of CESifo, an international research network of renowned economists. MIT Press has published the entire series. The purpose of this particular body of work is to advance theory on the relationship between economics and conflict—conflict within states as an alternative means for allocating resources and conflict as an external option in protecting economic interests.

The chapters are eclectic in nature and source. After a contextual introduction provided by editor Karl Wärneryd, associate professor of economics at Stockholm School of Economics, the substantive chapters that make up this volume begin with “Strategic Aspects of Fighting in Alliances.” Here author Kai A. Konrad notes that the disadvantages of alliances, such as free riding and inside rivalries among states, can be more than negated by leveraging these rivalries and inherent state synergies within the alliance. In chapter 2, “Fiscal Equalization and Political Conflict,” author Maria Cubel identifies the increasing likelihood of internal state conflict—such as, mass rallies, protests, boycotts, session demands, and lobbying—between larger regions and peoples that occur when state budgets are not purely public, whereas smaller regions and groups initiate budget conflict when budgets are private in nature. This work calls attention to the importance of fiscal equalization to prevent internal state conflict that otherwise could destabilize and undermine state government and/or economic activity. In chapter 3, “Natural Resources, Social Conflict, and Poverty Trap,” author Davide Fiaschi finds poor countries—in terms of low GDP per capita, low life expectancy, and low investment, along with high population growth and weak government institutions brought on by internal social conflict—are more likely to incur civil war. Dependencies on the export of natural resources for income exacerbate strife partly due to resource depletion and price fluctuations trapping the nation in poverty and civil conflict.

In chapter 4, “A Game of Thrones: Power Structure and the Stability of Regimes,” Ruixue Jia and Pinghan Liang identify the relationship between state power structures and the occurrences and outcomes of plots to replace governments, particularly coups. They discover that decentralized forms of government are more likely than centralized governments to incur coups, thus fostering instability that offsets their advantage over centralized governments in delivering/promoting growth and equality. Centralized governments are less likely to fall victim to coups. However, if a coup is successful, the victor is more likely to hold power. In chapter 5, “The Probability of Rule in Africa, 1970 to 2007,” authors Raul Caruso, Jacopo Costa, and Roberto Ricciuti analyzed the probability of 48 individual African countries experiencing military dictatorship. They conclude that low income per capita increases the likelihood of a military takeover. As income rises, military overthrows are less likely. Countries with open economies and openness to trade incur fewer military occupations. Finally, past threats of military takeovers adversely affect current probabilities. In “Sociopolitical Conflict and Economic Performance in Bolivia,” the authors of chapter 6—Jose Luis Evia, Roberto Laserna, and Stergios Skaperdas—use Bolivia as case study to demonstrate how conflict affects economic performance. Notably, they identify the adverse effects it had on consumption, investment, production, and the misallocation of resources.

In chapter 7, “Occupational Choices and Insurgency in Afghanistan’s Provinces,” authors Vincenzo Bove and Leandro Elia illustrate how different levels of resources, particularly opium, interact with the level of violence in Afghanistan. A noteworthy finding of their study is that higher opium prices do not increase the level of violence through insurgency activity. The opposite is the case; whereas, lower opium prices increase the effect of violence. Lastly, production and trafficking of drugs are both causes and effects of political instability in Afghanistan. Chapter 8, “Social Unrest in the Wake of IMF Structural Adjustment Programs,” authors Caleb Stroup and Ben Zissimos investigate the relationship between the International Monetary Fund Structural Adjustment Program (SAP) and social unrest. The result of their analysis indicates that the SAP does not improve a country’s economic performance. They find that this is particularly so among countries having a comparative advantage in producing primary products and subsequently forced into greater trade integration, thus losing much of their trade advantage. In the book’s final chapter, “Social Preference of Ex-Combatants: Survey and Experimental Evidence from Postwar Tajikistan,” authors Alessandra Cassar, Pauline Grosjean, and Sam Whitt found that violence created long-lasting divisions of social groups, particularly in areas directly affected by the conflict. Former combatants are less trusting, less trustworthy, and less generous in behavior than their noncombatant counterparts. These results do not hold much promise for economic and political reintegration among former combatants.

The chapters throughout the entire book display exceptional scholarly rigor. All of the authors bring forward relevant literature directly bearing on their research, as well as supporting their theories and premises with sound empirical evidence depicted with clarity in tables, charts, diagrams, and figures. However, because of the complexity of most of these topical issues, the written text and formulas/equations used to test their hypotheses are difficult to follow and understand by even the astute reader. Yet, due to the nature of the subject matter, each chapter can be read independently of the others.

The book is unique and thought provoking and advances the body of knowledge concerning economics and conflict theory in a meaningful way. It is best read by economic and civil conflict scholars and research analysts within the US government and international institutions seeking a better understanding of the subject matter in order to advance peace and prosperity in poor and vulnerable nations.

Dr. David A. Anderson
US Army Command and General Staff College

"The views expressed are those of the author(s) and do not reflect the official policy or position of the US government or the Department of Defense."

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