From wages to conflict: Does an increase in the real wage decrease internal conflict in developing countries?

This study is among the first to investigate whether the real wage affects various forms of internal conflict across 65 developing countries from 1990 to 2021. This study’s methodology employs the Method of Moments quantile regressions of Machado and Silva. This approach is novel for its capacity to reveal heterogeneous effects across the entire distribution of conflict intensity. Robustness tests include GMM, 2SLS, fixed effects with Driscoll and Kraay standard errors, and an extensive set of control variables. The findings highlight the stabilizing role of wage increases. Increases in real wages are consistently associated with lower levels of internal conflict and reductions in political violence, terrorism, and civil disorder. The quantile estimates indicate that the conflict-mitigating effect of real wage increases is most pronounced in contexts with elevated baseline levels of political violence and civil disorder, whereas the effects are weaker and often statistically insignificant in more stable environments. By contrast, decreases in real wages do not exhibit a robust or systematic association with the broader measure of internal conflict, but are associated with higher levels of political violence and terrorism and increased civil disorder in already volatile settings. Real wage declines are less likely to translate into high-intensity conflict outcomes such as civil wars or coups. Finally, dynamic specifications suggest that the effects of real wage changes on conflict are primarily short-run and context-dependent, with statistically significant associations concentrated in contemporaneous and short-horizon responses rather than in persistent long-term effects. Overall, the findings indicate that improving real wages plays a central role in mitigating unrest, while adverse income shocks tend to amplify existing conflict dynamics rather than acting as a general trigger of violence.