Replication Data for: Shock Persistence and the Study of Armed Conflict: Empirical Biases and Some Remedies

Poor employment prospects for potential insurgents are often thought to increase the intensity of armed conflict. A large empirical literature tries to identify the strength of this “opportunity cost” channel, in part by regressing conflict on commodity price shocks that affect the demand for workers. In this research note we develop a theoretical framework to interpret these empirical results. We argue that because commodity price shocks are usually persistent, the estimated strength of the opportunity cost mechanism will be biased upwards (towards zero)— even for labor-intensive commodities whose price shocks are not permanent. We define this bias analytically and, using regressions on simulated data, show that it is quantitatively important for commodities studied in the literature. The bias occurs because persistent shocks that reduce employment prospects today are correlated with unobserved dynamic motivations to fight, such as the expected value of an oil field or a fighter's subjective value of a grievance. We conclude that the opportunity cost mechanism may be even stronger than has been estimated, and that researchers should use transient or seasonal shocks to identify its magnitude.