Economic Shocks and Civil Conflict: An Instrumental Variables Approach

There is a growing body of research that highlights the association between economic conditions and civil conflict (see Sambanis 2001 for a review). The existing literature, however, does not adequately address the endogeneity of economic variables to civil war, and thus does not convincingly establish a causal relationship. In addition to endogeneity, omitted variables – for example, government institutional quality – may drive both economic outcomes and conflict, producing misleading cross-country estimates. In “Economic Shocks and Civil Conflict: An Instrumental Variables Approach, ” we use exogenous variation in rainfall as an instrumental variable for income growth in order to estimate the impact of economic growth on civil conflict. Weather shocks are plausible instruments for GDP growth in economies that largely rely on rain-fed agriculture, i.e., neither have extensive irrigation systems nor are heavily industrialized. The instrumental variable method makes it credible to assert that the association between economic conditions and civil war is a causal relationship, rather than simply a correlation