ECON 340 FINAL STUDY GUIDE Chapter 2 Conflict Trap Civil war as the conflict trap What is civil war According to Uni of Michigan it is an internal conflict that involes at least 1 000 combat related deaths with each side incurring at least 5 of these deaths Civil war is much more likely to break out in low income countries Why War makes a country poor or poverty makes a country prone to war BOTH runs away Typical low income country faces a risk of civil war of 14 in a 5 year period Each point added to the growth rate knocks off a point from this risk Anticipation of civil war causes economic decline investors flee the country capital Low income and slow growth makes a country prone to civil war why Low income means poverty and low growth means hopelessness Dependence upon primary commodity exports oil diamonds increases the risk of civil war Also finance it Story Kabila of Zaire said a rebellion only need this 10 000 and a satellite phone Money for the army And satellite phone to make deals for natural resources if he siezes power Is it true that well founded grievances generally provoke rebellion Not really Two political scientists at Stanford Jim Fearon and David Laitin found ethnic rebels are likely to rebel with or without discrimination Good evidence is about the civil struggle in Fiiji between Mahendra Chaudhry incumbent president and George Speight pg 24 Chap 2 Bottom Billion No relation between ethnic diversity and increased chances of civil war at least in the Bottom Billion Most of the societies that make up the bottom billion are too diverse for any one group to be this dominant The Length of Civil Wars The lower a country s income at the onset of a conflict the longer the conflict lasts And only half of the countries in which a conflict has ended manage to make it through a decade without relapsing into war One civil war increased the chance of another by double The Costs of War Civil war tends to reduce growth by around 2 3 per year The costs do not stop after the civil war ends as much as half accrue after the war is over Rebel leaders do it for money Look at Jonas Savimbi 4 bil over diamonds lost presidential election waged civil war Why do people join the cause recruits are desperate and poor Death is not so bad as compared to their lives Really Plus young people are motivated by the prospects of getting rich by the resources oil and diamond Gradually the composition of the rebel group will shift from idealists to opportunists and sadists 3 characteristics that make you engage in political violence being young being uneducated and being without dependents In the absence of an oil well there is no scope for extortion and so no violent protest With an oil well the protection racket is in business But the more oil wells there are in the district the greater the incentive for the oil company to pay up and buy peace The Conflict Trap low income slow growth and dependence upon primary commodity exports Political peace does not usher into social peace Good example A country such as the Democratic Republic of the Congo will need around half a century of peace at its present rate of growth simply to get back to the income level it had in 1960 It chances of getting fifty continuous years of peace with its low income slow growth dependence upon primary commodities and history of conflict are unfortunately not high This country is likely to be stuck in a conflict trap no matter how many times it rebrands itself unless we do something about it Coups Rebellion is not the only form of violent illegitimate challenge to governments in the countries of the bottom billion Coup and rebellion same low income and low growth except coups don t need natural resources since the financing is paid for by gov Chapter 3 The Natural Resource Trap The surplus from natural resource exports significantly reduces growth Economists the excess of revenues over all costs including normal profit margins rent and rents seem to be damaging Resource curse Dutch disease become overvalued Resource exports causes your currencies to rise in value against another s Other exports activities uncompetitive yet these activities might have been the best vehicles for technological progress Exports lose their value domestically local services thus become more expensive and resources get diverted into producing them Example 1970s Nigeria where oil revenues built up and the country s exports such as peanuts and cocoa become unprofitable and production rapidly collapsed What should be done is exporting that is labor intensive like China and India Boom and bust cycle as happened in Nigeria of which the World Bank got the blame Goes like this Nigeria found oil and started exporting tons borrowed more and From the money borrowed had huge wasteful corrupt public projects that offered During this boom some progress did trickle down but in 1986 everything came to more money to build refinaries very low rate of returns a halt when oil prices crashed The government launched some limited economic reforms reform induced growth only helped slightly to offset the misery of falling living standards but couldn t cure the overall picture Nigerian s think the poverty they experienced was caused by the economic reforms that took place that lead to the boom blame the international financial institutions that conspired to ruin Nigeria It was the leaders that messed up the country but borrowing too much and spending too much Oil rents have substantially reduced the likelihood that a society is democratic In the presence of large surpluses from natural resources autocracies outperform democracies and the effects are large Some points No natural resource full democracy outperforms a despotic autocracy by 2 With natural resource rents of 20 of national income autocracy outperforms democracy by 3 in growth rate Why is this Resource rich democracies underinvest Governments are so fixated on winning the next election that they disregard what might happen afterward and so neglect investments that only come to fruition in the future Also in addition to underinvestment they invest badly with too many white elephant projects Resource surpluses create politics of patronage For more detail check out pg 45 of the book Where patronage politics is not feasible the people attracted to politics are more likely to be interested in issues of public services provision Why do big resource revenues weaken political restraints No need to tax so no need to