Commodity Prices and Violence in Indonesia

Sammanfattning: What is the linkage between commodity prices and violence? Earlier theory proposes two potential dimensions of the relation. First, through heightening the opportunity cost of crime and conflict, hikes in wages lower violence - the opportunity cost effect. Second, by means of enlarging the incentives of appropriation, rises in contestable income increase violence - the rapacity effect. Implied then, is that changes in prices for labour intensive goods (which correlate strongly with wages relative to rents and asset value) relate negatively with violence, and that changes in prices for capital intensive goods (for which the opposite hold) relate positively with violence. However, recent research suggests it could be more complicated. For while the contestable income becomes greater, so should the state's capacity to defend and deter appropriation. This is the state capacity effect. Through exploiting the world's largest national data set on violence, and examining how changing prices in commodities hit local regions with varying levels of production differently, we test these economic processes empirically in a case study on Indonesia. Through our tests, we provide evidence for the two lastly mentioned, counteracting effects, and find no clear support for the first. For the capital intensive commodities, the rapacity effect seems to dominate the state capacity effect. For the labour intensive, the results are ambiguous and indicate that, in this context, the fundamental dichotomy of labour versus capital intensity itself is problematic.