Working Paper: CEPR ID: DP3422
Authors: James A. Robinson; Ragnar Torvik; Thierry Verdier
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: Clientelism; Natural Resources; Political Economy
JEL Codes: D72; D78; Q20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| politician's overextraction (D72) | inefficient resource allocation (D61) |
| resource booms (Q33) | improved extraction practices (L72) |
| resource booms (Q33) | greater resource misallocation (D61) |
| institutional quality (L15) | impact of resource booms on economy (Q33) |