Price volatility and the political economy of resource-rich nations

Ahmed Mahmud () and Syed Basher ()

Economics of Governance, 2014, vol. 15, issue 3, 253-279

Abstract: This paper attempts to understand how price volatility affects the political transition of a resource-rich nation. Two states reflect price volatility: ‘high prices’ and ‘low prices’. We argue that whether or not political transition (i.e., a switch from one regime to another) will take place in a particular state depends critically on the kind of goods a country produces. If the main economic activity in a country is the extraction of “point-source” resources such as oil that demands capital-intensive production, the opportunity cost of switching the existing regime does not alter if the price of the resource changes but the benefit becomes more lucrative. Therefore, the incumbent group is most vulnerable during ‘high prices’. If the main economic activity of the nations is the production of “diffused resources” such as coffee that requires labor, prices do affect the opportunity cost. Nations concentrating in these commodities face acute political crisis during downturns. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Price volatility; Natural resources; Political systems; O13 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10101-014-0144-7

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