Natural resource rents, autocracy and economic freedom

Morten Endrikat ()
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Morten Endrikat: University of Aachen

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: This paper theoretically and empirically investigates the effect of natural resource rents on the process of economic liberalization and a potential moderating effect of the level of democracy. A simple political-economic model is developed in which the government in an autocratic country faces a trade-off between liberalizing the economy to broaden the tax base on the one hand and consolidating its political power by preventing the rise of an economically independent middle class striving for political participation on the other hand. Whilst the theoretical model predicts that rents from natural resources lead to economic liberalization in both autocratic and democratic countries, the empirical analysis finds evidence that increasing resource abundance may lead to deliberalization in autocracies but may promote liberalization in democracies. The empirical evidence is robust to using both static panel data methods that control for unobserved country heterogeneity as well as a dynamic GMM estimator that further controls for potential endogeneity issues.

Keywords: Natural Resources; Resource Curse; Institutions; Taxation; Economic Liberalization; Entrepreneurship (search for similar items in EconPapers)
JEL-codes: D73 H20 O13 O39 Q32 Q38 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2021
New Economics Papers: this item is included in nep-env and nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:202117

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