Globalization, Economic Shocks, and Armed Conflict

Conference Paper

Hegre, Håvard & Ibrahim Elbadawi (2004) Globalization, Economic Shocks, and Armed Conflict, presented at a conference on ‘Globalization, Territoriality and Conflict’, University of California, San Diego, 16–18 January.

Critics of trade liberalization argue that globalization increases vulnerability to economic shocks and hence may exacerbate domestic social conflict. Such social conflict may be also be transformed into armed conflict. Others argue that globalization promotes economic growth and reduces poverty, which leads to a reduction in the risk of conflict. This paper investigates some of these claims empirically. A set of operationalizations of economic shock is developed and used to analyze the risk of conflicts that involve at least 25 battle deaths per year. The paper also develops instrument variables for openness and for shocks to avoid violation of the exogeneity assumption. The paper also tests the extent to which the effect of the shock is contingent on latent social conflict and (democratic) institutions for conflict management.The analysis finds only weak evidence for a direct relationship between trade openness, trade shocks, and the risk of armed conflict. There is somewhat more basis for concluding that globalization affects the risk indirectly through its effect on long- and shortterm growth.