Leader Behavior and the Natural Resource Curse

Francesco Caselli () and Tom Cunningham

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We discuss political economy mechanisms which can explain the resource curse, in which anincrease in the size of resource rents causes a decrease in the economy's total value added.We identify a number of channels through which resource rents will alter the incentives of apolitical leader. Some of these induce greater investment by the leader in assets that favourgrowth (infrastructure, rule of law, etc.), others lead to a potentially catastrophic drop in suchactivities. As a result, the effect of resource abundance can be highly non-monotonic. Weargue that it is critical to understand how resources affect the leader's "survival function", i.e.the reduced-form probability of retaining power. We also briefly survey decentralisedmechanisms, in which rents induce a reallocation of labour by private agents, crowding outproductive activity more than proportionately. We argue that these mechanisms cannot befully understood without simultaneously studying leader behaviour.

Keywords: Natural resource endowment; resource curse; political economy (search for similar items in EconPapers)
JEL-codes: O11 O13 P26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-res
Date: 2009-03
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Journal Article: Leader behaviour and the natural resource curse (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:cep:cepdps:dp0913

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