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The Quality of Political Institutions and the Curse of Natural Resources

Authors


  •  Corresponding author: Antonio Cabrales, Department of Economics, Universidad Carlos III de Madrid, Madrid 126, 28903 Getafe, Spain. E-mail: antonio.cabrales@uc3m.es.

  • A previous version of the article was circulated under the title: Democracy and the curse of natural resources. We thank Pablo Fleiss and Ognjen Obucina for valuable research assistance. We are especially indebted to the editor, Andrew Scott, and two anonymous referees. We also thank Facundo Albornoz-Crespo, Matteo Cervellati, Juan Dolado, Jesús Gonzalo, Albert Marcet, José García-Montalvo, Eleonora Pattacchini and participants in seminars at the University of Zurich, the Institute of Advanced Studies in Vienna, the University of Alicante, Cambridge University, the University of Brescia, University of Mannheim, Oxford University, the ECB, City University London and SWIM 2009 for helpful comments. We gratefully acknowledge financial support from the Spanish Ministry of Science and Technology under grants CONSOLIDER-INGENIO 2010 (CSD2006-0016), SEJ2006-01717 and SEJ2006-11665-C02-00.

Abstract

We propose a theoretical model to explain empirical regularities related to the curse of natural resources, which emphasises the behaviour and incentives of politicians. We extend the standard voting model to give voters political control beyond the elections. This gives rise to a new restriction that policies should not give rise to a revolution. Our model clarifies when resource discoveries might lead to revolutions, namely, in countries with weak institutions. It also suggests that for bad political institutions human capital depends negatively on natural resources, while for high institutional quality the dependence is reversed. This finding is corroborated in cross-section regressions.

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