The Economics of Democracy in Resource-Producing Countries

G D I Barr and L J Sharp

Studies in Economics and Econometrics, 2006, vol. 30, issue 1, 41-58

Abstract: It is common to treat the political system (including ownership and expropriation risks, and civil and electoral freedoms) as an exogenous influence over economic conditions. Nonetheless, there is an increasing tendency in economics and political science to view the political system as both a consequence and a determinant of economic conditions. However, the specific nature of these interrelationships is not well understood. For instance, it is common to use Africa and/or oil country ‘dummies’ when explaining international patterns of democratic freedom. This study uses a cross-sectional regression approach for 182 resource-producing countries and concludes that resource endowments affect political conditions through the factor markets. In particular, it demonstrates that the elasticity of factor substitution has a close and consistent empirical relationship with both democracy and resource intensity, and that the statistical significance of the Africa and oil-country dummies falls away when the econometric specification incorporates the elasticity of factor substitution.

Date: 2006
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DOI: 10.1080/10800379.2006.12106399

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