Democracy in emerging markets: A new perspective on the natural resources curse

Abstract

Using annual data from 1980 to 2014, we reexamine the relationship between democracy and natural resources for a large sample of emerging market economies. Controlling for human capital (or real GDP per capita) and openness measures, dynamic panel methods address endogeneity from more democratic regimes demanding better control of rents. We find that democracy responds positively to natural resource rents in GDP (NAT) and negatively to terms of trade (TOT). The NAT positive effects mitigate the negative impact of TOT on democracy and holds well in different specifications. By building on a literature focusing on oil rents, increases in NAT (extra revenue over production costs) represent a windfall for mining companies. This leads society to require higher levels of participation in decisions to exploit these rents more transparently. We also find that diversification of rents helps democracy, especially in economies with high shares of oil rents.

Accountability and transparency in emerging countries: Governance, democratic currents and change

“…Understandably, the economy looms large in any discussion of democratic trends in emerging countries, with claims that economic resources increasingly drive accountability and decision‐making participation (e.g., Mollick et al., 2020). Even in terms of foreign policies, such countries may be described as ‘emerging‐market’ democracies (Brookings Institution, 2011).…”

Democracy and Banking Stability: Is the Relationship U-Shaped?

“…Using the quantile regression technique and data from 19 emerging countries covering the 1997-2010 period, Lv (2018) showed that above a certain income level, democracy contributes strongly to reduce CO 2 emissions. Similarly, Mollicka et al (2020) detected a positive relationship between democracy and natural resources rents. They also provided evidence that an increase in natural resources requires a participative decision-making process.…”

The Dynamic Impact Among Oil Dependence Volatility, the Quality of Political Institutions, and Government Spending

“…The 'resource curse' hypothesis indicates that countries with an abundance of natural resources (e.g.,petroleum) tend to have less economic growth, less democracy and lower institutional quality than countries with fewer natural resources (Mollick et al, 2020;Gilberthorpe and Papyrakis, 2015;Boutilier, 2017;Manzano and Gutiérrez, 2019;Ross, 2019;Moisé, 2020).…”

“…Therefore, there is an expectation that there will be a difference in government expenditure that is responding to changing oil revenues within different institutional frameworks. If oil resources are owned by the government, the government structure is a factor that is affecting the allocation and spending of oil wealth, as well as the resources of rent distribution (Mollick et al, 2020;Aslaksen, 2010).…”