The Quality of Political Institutions and the Curse of Natural Resources

Abstract

We propose a theoretical model to explain empirical regularities related to the curse of natural resources, which emphasises the behaviour and incentives of politicians. We extend the standard voting model to give voters political control beyond the elections. This gives rise to a new restriction that policies should not give rise to a revolution. Our model clarifies when resource discoveries might lead to revolutions, namely, in countries with weak institutions. It also suggests that for bad political institutions human capital depends negatively on natural resources, while for high institutional quality the dependence is reversed. This finding is corroborated in cross section regressions.Until World War II the economics profession tended to believe that natural resources were an unqualified blessing for the nation that owned them. However, in the post World-War II period, the evidence against this belief started accumulating: many resource rich countries grew very slowly and economists started to talk about the curse of natural resources. There is a large number of empirical papers which find evidence of this curse

Poor Institutions, Rich Mines: Resource Curse in the Origins of the Sicilian Mafia

“…Although some evidence suggests that resource‐rich countries display worse economic performance than resource‐poor ones (Sachs and Warner, ), no unanimous consensus on this matter has emerged (Haber and Menaldo, ). In fact, as some observers have pointed out, whether natural resources may result in a ‘curse’ or a ‘blessing’ may crucially depend on a country's institutional quality (Mehlum et al ., , b; Cabrales and Hauk, ) . In the presence of weak institutions, our argument goes, natural resources are particularly vulnerable to predatory attacks; in this context, the (illegal) use of violence provides mafia‐type criminal organisations with a competitive advantage in the supply of protection and extortion (Gambetta, ; Konrad and Skaperdas, ), resulting in the capacity to extract a substantial portion of natural‐resource‐based rents…”

“…Nigeria, Zimbabwe)? The quality of pre‐existing political and legal institutions is arguably important: when institutions are dysfunctional, conflict over access to resource rents is likely to escalate, giving rise to increased corruption, rent‐seeking and even violence (Collier and Hoeffler, ; Skaperdas, ); resources may be diverted from human capital accumulation and other productive uses (Cabrales and Hauk, ; Dal Bó and Dal Bó, ; Dube and Vargas, ). Similarly, the literature on organised crime (Gambetta, ; Konrad and Skaperdas, ) has argued that the combination of weak institutions and resource abundance can be conducive to the emergence of mafia‐type organisations, which can have profound and long‐lasting effects on a country's economic prospects.…”

Commodity Windfalls, Democracy and External Debt

“…In the political economy resource curse literature the key idea why resource wealth generates a curse is that it is more easily appropriated by the governing elites than other wealth. Political institutions matter therefore because they affect the incentives of the governing elites to appropriate the resource wealth (Caselli, 2006;Mehlum et al, 2006;Robinson et al, 2006;Cabrales and Hauk, 2011). In the political economy literature on fiscal policy, two predictions are that more political uncertainty leads to a higher level of external debt and that excessive corruption introduces pro-cyclicality in government spending to revenue windfalls (Alesina and Tabellini, 1989;Alesina et al, 2008).…”

Palm Oil and the Politics of Deforestation in Indonesia

“…Our paper is linked to three strands of literature. First, it is related to the growing conceptual and empirical literature on the relationship between institutions and the environment (Ostrom, 1990;Cabrales and Hauk, 2011;Jia, 2014;Fenske, 2013). Specifically, we contribute to the body of research focusing on the impact of local governments on forest conservation efforts, when private or political gains are at stake.…”