Oil and Conflict: What Does the Cross-Country Evidence Really Show?

Abstract

This paper examines the effect of oil abundance on political violence. First, we revisit one of the main empirical findings of the civil conflict literature that oil abundance causes civil war. Using a unique panel dataset describing worldwide oil discoveries and extractions, we show that simply controlling for country fixed effects removes the statistical association between oil reserves and civil war in a sample of more than 100 countries over the period 1930-2003. Other macro-political violence measures, such as coup attempts and irregular leader transitions, are not affected by oil reserves either. Rather, we find that oil-rich nondemocratic countries have a larger defense burden. To further address the problems of endogeneity and measurement error, we exploit randomness in the success or failure of oil explorations. We find that oil discoveries do not increase the likelihood of violent challenges to the state in the sample of country-years in which at least one exploratory well is drilled, and oil discoveries increase military spending in the subsample of nondemocratic countries. Similar results are obtained on a larger sample which includes country-years without oil exploration while controlling for selection based on the likelihood of exploration using propensity score matching. We suggest a possible explanation for our findings based on the idea that oil-rich nondemocratic regimes effectively expend resources to deter potential challengers.