INTERNATIONAL PRICES AND CONTINUING CONFLICT. THEORY AND EVIDENCE FROM SUB-SAHARAN AFRICA (1980-2017)

This paper presents a theoretical model of conflict between two parties in a two-sector economy. In a ‘contested’ sector, they struggle to appropriate the maximum possible fraction of a contestable output. In an ‘uncontested’ sector, they hold secure property rights over the production of some goods. Parties split their resource endowment between ‘butter’, ‘guns’ (in the contested sector) and ‘ice cream’ (in the uncontested sector). The model predicts that the optimal level of ‘guns’ depends positively on the price of ‘butter’ and negatively on the price of ‘ice cream’. Theoretical results are tested by means of a panel analysis of Sub-Saharan African countries for the period 1980-2017. Results show that international prices of manufactures (interpreted as the uncontested ice cream sector) are negatively associated with arms imports and military expenditures so confirming the theoretical prediction. In addition, world prices of some commodities are positively associated with arms imports and military expenditures.