Stimulant or Depressant? Resource-Related Income Shocks and Conflict

Abstract

Abstract We provide evidence on the mechanisms linking resource-related income shocks to conflict, focusing on illegal crops. We hypothesize that the degree of group competition over resources and the extent of law enforcement explain whether opportunity cost or contest effects dominate. Combining temporal variation in international drug prices with spatial variation in the suitability to produce opium, we show that higher prices increase household living standards and reduce conflict in Afghanistan. Analyzing shifts in conflict tactics and using geo-referenced data on drug production networks and territorial control highlight the importance of opportunity costs, and reveal heterogeneous effects consistent with our theory.