Resource Curse, Political Entry, and Deadweight Costs

Abstract

A simple model of political entry in a two-sector economy is developed to analyze the effects of natural resource wealth on economic policy, political development, and civil insurrection. The model emphasizes the role of political entry and deadweight costs of taxation on the joint determination of these economic and political outcomes. Contrary to popular belief, my model shows that natural resource abundance is an economic blessing even in a rent-seeking society, although resource dependence can be negatively associated with economic performance. In a contested political market, dictators care about popular support and hence resource wealth can help reduce the deadweight cost of taxation (and hence the cost of public good provision). On the other hand, natural resource wealth can be a political curse, because it encourages political entry and hence it induces incumbent dictators to run more repressive regimes. With constant returns counterinsurgent technology, however, the equilibrium number of insurgents is independent of the size of resource wealth. The onset of civil war, therefore, depends on the counterinsurgent technology and whether the costs of entry deterrence are affected by resource wealth. This helps clarify the two seemingly contradictory hypotheses that "resource wealth enhances regime durability" and "resource wealth fuels conflict." Copyright 2010 Blackwell Publishing Ltd.

The extractive industries and development: The resource curse at the micro, meso and macro levels

“…Spending on patronage fuelled by the abundance of mineral rents may have a similar effect (Auty, 2005;Vandewalle, 1998). Mineral rents concentrated in the hands of authoritarian rulers may also suppress democratic aspirations either in the form of excessive spending in internal security (this is what Michael Ross (2001) coins the 'repression effect'; see also Sandbakken, 2006;Tsui, 2010 andGause, 1995) or obstruction of free information (Dutta and Roy, 2009;Egorov et al, 2009;Williams, 2011). The appropriability of the mineral rents by the rulers in power (which for example might increase when mineral industries are nationalised) naturally mediates the resource-democracy relationship (Ross, 2012;Snyder and Bhavnani, 2005).…”

Natural resources and the tradeoff between authoritarianism and development

“…Other recent contributions to the literature on the resource curse includeBulte and Damania (2008),Bornhorst et al (2009) andTsui (2010).3 Aslaksen (2010) uses fixed effects in a model of the effect of oil on democratization (rather than economic performance) Bhattacharyya and Hodler (2010). use fixed effects in a model of the effect of natural resources on corruption (rather than economic performance) Tsui (2011).…”

Are natural resources bad for health?

“…As a result, it is well established that dependence on natural resources (especially hydrocarbons) significantly impacts countries' political traits. For example, oil resources have been found to hinder democracy (Ross, 2001;Robinson et al, 2006;Tsui, 2010). Moreover, this literature suggests that autocratic resource countries, especially oil and hydrocarbonintensive states may spend more on social services, including healthcare, to attain societal peace (Ross, 2001).…”

“…Therefore, resource-rich countries would be able to extend public goods (including education and health) at a lower social cost (Mahdavy, 1970;Beblawi, 1987;Ross, 2001;Robinson et al, 2006, Tsui, 2010.…”