Political Foundations of the Resource Curse

Thierry Verdier, James Robinson and Ragnar Torvik

No 3422, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this Paper we argue that the political incentives that resource endowments generate are the key to understanding whether or not they are a curse. We show: (1) politicians tend to over-extract natural resources relative to the efficient extraction path because they discount the future too much; (2) resource booms improve the efficiency of the extraction path; (3) resource booms, however, by raising the value of being in power and by providing politicians with more resources which they can use to influence the outcome of elections, increase resource misallocation in the rest of the economy and (4) the overall impact of resource booms on the economy depends critically on institutions, since these determine the extent to which political incentives map into policy outcomes. Countries with good institutions tend to benefit from resource booms since these institutions mitigate the perverse political incentives that such booms create. Countries with bad institutions suffer a resource curse.

Keywords: Natural resources; Political economy; Clientelism (search for similar items in EconPapers)
JEL-codes: D72 D78 Q20 (search for similar items in EconPapers)
Date: 2002-06
New Economics Papers: this item is included in nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (56)

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Related works:
Journal Article: Political foundations of the resource curse (2006)
Working Paper: Politcal Foundations of the Resource Curse (2003)
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