IMF Working Papers

Social Unrests and Fuel Prices: The Role of Macroeconomic, Social and Institutional Factors

By Alassane Drabo, Kodjovi M. Eklou, Patrick A. Imam, Kangni R Kpodar

October 27, 2023

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Alassane Drabo, Kodjovi M. Eklou, Patrick A. Imam, and Kangni R Kpodar. Social Unrests and Fuel Prices: The Role of Macroeconomic, Social and Institutional Factors, (USA: International Monetary Fund, 2023) accessed November 6, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper investigates the impact of fuel price increases on social unrests in addition to the macroeconomic, social and institutional factors driving this relationship. Using the IV fixed-effect estimator on a sample of 101 developing countries during 2001-2020, we find that changes in fuel prices are positively associated with the number of social unrests, mainly anti-government demonstrations. This impact is however amplified: (i) during economic downturns and periods of high exchange rate instability; (ii) when government spending is low, especially on health and education, thus suggesting that streamlining fuel subsides and diverting parts of the reform savings to the health and education sectors is an appropriate policy that could appease social tensions; (iii) in countries with high income inequality, low institutional quality and high level of corruption. The results are robust to a battery of tests, including the use of an instrumental variable approach to address reverse causality concerns given that social unrests could also prompt a freeze in fuel prices. We also find consistent results using either changes in diesel or gasoline prices. Overall, the findings of the paper provide support to the grievance and deprivation theory in explaining the association between fuel price increases and social unrests, but fail to find evidence for the resource theory and the theory of political opportunities.

Subject: Energy subsidies, Expenditure, Fuel prices, Inflation, Oil prices, Prices

Keywords: Africa, Baseline result, Caribbean, Changes in fuel price, Energy subsidies, Europe, Fuel prices, Fuel riot, Global, Gov. effectiveness WGI, Inflation, Institutions, Middle East, Oil prices, Public spending, Retail fuel prices, Social unrests, Stage regression, Transmission of fuel price

Publication Details

  • Pages:

    49

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2023/228

  • Stock No:

    WPIEA2023228

  • ISBN:

    9798400257384

  • ISSN:

    1018-5941