## Macroeconomic Shocks and Conflict

_IMF Working Papers, March 17, 2023_

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**Canonical URL:** [Macroeconomic Shocks and Conflict](https://www.imf.org/en/publications/wp/issues/2023/03/18/macroeconomic-shocks-and-conflict-531101)

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## Bibliographic details
- Authors: Patcharaporn Leepipatpiboon, Chiara Castrovillari, Tomohide Mineyama
- Published: March 17, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400238222.001

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### Study overview
- Objective: Analyze to what extent changes in a country’s commodity terms-of-trade (ToT) can explain an increase in the incidence and intensity of conflicts through their effect on aggregate income.
- Scope: Sample of 133 low- and middle-income countries over a 30-year period.
- Paper type: IMF Working Paper No. 2023/068.

### Methodology and data
- Sample size: 133 low- and middle-income countries.
- Time span: 30-year period.
- Main explanatory variable: commodity terms-of-trade (ToT) shocks.
- Main outcomes: number of conflict events and fatalities.
- Model: baseline empirical model examining the effect of negative commodity ToT shocks on conflict indicators.

### Key findings
- A negative commodity ToT shock leads to an increase in the number of conflict events and fatalities.
- Temporal pattern: the effect plays out over several years, with decreasing strength after the second year.
- Heterogeneity:
  - The magnitude of the effect is twice as large for Low-Income Countries and Fragile and Conflict-affected States when compared with the sample average.
  - Macroeconomic shocks create more violence in countries with higher inequality.
  - Greater violence is observed where fiscal policy faces relatively stronger constraints on financing a response to the initial shock to incomes.
- Robustness: Results are robust to a number of plausible variations in model specification.
- Interpretation: Findings, together with prior studies on the economic cost of conflicts, suggest the presence of a fragility trap—a vicious cycle of worsening economic conditions and deteriorating conflicts.

### Policy implications and recommendations
- Effective policies and well-tailored external financial support could be expected to help countries address the fragility trap arising from macroeconomic shocks and increased conflict.
- Fiscal space and capacity to finance responses to income shocks are important moderators of the conflict response to ToT shocks.

### Keywords and thematic tags
- commodity prices, Conflict, fragile and conflict-affected states, low-income countries, spillover, terms-of-trade shock

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_Source: https://www.imf.org/en/publications/wp/issues/2023/03/18/macroeconomic-shocks-and-conflict-531101_