Ethnic diversity, concentration of political power and the curse of natural resources

Waqar Wadho and Sadia Hussain ()
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Sadia Hussain: Lahore School of Economics

Economia Politica: Journal of Analytical and Institutional Economics, 2023, vol. 40, issue 1, No 5, 113-137

Abstract: Abstract The empirical evidence suggests that resource rich countries tend to have poor economic performance and higher rent seeking. In this paper, we develop a general equilibrium model explaining why natural resources turn out to be a curse in an economy divided into two classes: elite and workers. Our model explains the resource curse in a setup in which governing elite expropriate rents from natural resources which reduces the productive use of these resources. The expected costs and benefits of such rent seeking activities depend on the degree of ethnic polarization which affects the concentration of political power, and on the quality of institutions, which constrains rent seeking. The model predicts that in the presence of natural resources and rent seeking, ethnic polarization increases the concentration of political power, reduces income per capita and increases income inequality. Moreover, the impact will be higher in economies that depend more on natural resources.

Keywords: Rent seeking; Political power; Natural resource curse; Ethnic diversity; Inequality; Economic growth (search for similar items in EconPapers)
JEL-codes: D72 O11 O13 Q32 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s40888-022-00285-5

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