Oil and Civil Conflict: Can Public Spending Have a Mitigation Effect?

This paper explores the conditions under which public spending could minimize violent conflict related to oil wealth. Previous work on the resource curse suggests that oil can lead to violent conflict because it increases the value of the state as a prize or because it undermines the state's bureaucratic penetration. On the other hand, the rentier state literature has long argued that oil might provide states with resources to deliver public and private goods, and stabilize political regimes. The empirical evidence to settle these conflicting predictions is limited. This paper argues that the effect of oil on civil conflict is conditional on the size of government expenditure and the allocation of government spending for welfare or the military. To test these hypotheses, logit models of conflict onset are used and a global sample of 148 countries from 1960 to 2009 is examined. Higher levels of military spending are found to be associated with lower risks of both minor and major conflict onset in countries rich in oil and gas. By contrast, in countries with little oil or gas resources, increases in military spending are associated with a higher risk of conflict. Welfare expenditure is associated with a lower risk of small-scale conflict, irrespective of the level of oil revenue. However, general government spending does not appear to have any robust mitigating effects. Consistent with the focus in the more recent literature to disentangle the average effect of natural resources, these results nuance the conditions under which there may be a resource curse. The results point to what governments can do with resource revenues to mitigate conflict risk.