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Leader behaviour and the natural resource curse

By Francesco Caselli and Tom Cunningham

Abstract

We discuss political economy mechanisms which can explain the resource curse, in which an increase in the size of resource rents causes a decrease in the economy's; total value added. We identify a number of channels through which resource rents will alter the incentives of a political leader. Some of these induce greater investment by the leader in assets that favour growth (infrastructure, rule of law, etc.), others lead to a potentially catastrophic drop in such activities. As a result, the effect of resource abundance can be highly non-monotonic. We argue that it is critical to understand how resources affect the leader's ‘survival function’, i.e. the reduced-form probability of retaining power. We also briefly survey decentralized mechanisms, in which rents induce a reallocation of labour by private agents, crowding out productive activity more than proportionately. We argue that these mechanisms cannot be fully understood without simultaneously studying leader behaviour

Topics: GE Environmental Sciences, HB Economic Theory
Publisher: Oxford University Press
Year: 2009
DOI identifier: 10.1093/oep
OAI identifier: oai:eprints.lse.ac.uk:33834
Provided by: LSE Research Online
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