A two-period model of natural resources and inter-country conflicts: Effects of trade sanctions

We develop a two-period general equilibrium model linking natural resources to inter-country conflict, treating resource extraction and wage rate are endogenous. First, we characterize the war equilibrium and derive a number of properties of it. Second, we examine the effects of different types of trade sanctions imposed by the international community on war efforts of the two countries. We find that a temporary current sanction on both countries, or even on one of the countries, will be counter-productive, and an anticipated future sanction on both countries will unambiguously reduce war intensity. Whether an anticipated future sanction on one of countries will reduce war intensity will depend on the level of resource stock; the effect of a permanent sanction on both countries is ambiguous: war intensities will fall only if the resource stocks of the countries are sufficiently high.