Natural resource extraction and civil conflict

Based on evidence linking natural resources to civil conflict, this paper studies two armed groups fighting to control a resource and possibly a second prize. Labor is used in the agricultural, resource extraction and conflict sectors, and the groups also buy a capital input to conflict subject to the constraint that capital spending cannot exceed resource earnings. I find that exogenous shocks can have different effects on conflict intensity depending on whether the credit constraint binds. In particular, international policies to ban natural resource exports from conflict zones (e.g. ‘blood diamonds’), raise agricultural productivity or limit the import of weapons will limit conflict intensity if the credit constraint binds. However, if the credit constraint does not bind, then the first two policies promote conflict, and so could even the third policy. The results therefore suggest some caution in international policymaking.