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Windfall Gains, Political Economy, and Economic Development

Carl-Johan Dalgaard () and Ola Olsson ()

No 223, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: Natural resource rents and foreign aid have the character of windfall gains that affect economic outcomes both directly and indirectly. Several studies have shown that the indirect effect typically works via institutions like corruption. In this article, we offer a theoretical framework for a joint analysis of how natural resources and aid potentially affect total output in society through rent seeking activities. We survey the existing evidence on both direct and indirect effects of windfalls and provide some new empirical evidence of the association between aid/natural resources and institutions in a large cross-section of countries. Our results suggest that whereas more aid means less corruption, natural resource rents is positively correlated with corruption, although both relationships are nonlinear.

Keywords: institutions; aid; natural resources; windfall gains; economic growth; corruption; rule of law (search for similar items in EconPapers)
JEL-codes: F35 O11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pol and nep-res
Date: 2006-09-05
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:gunwpe:0223

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