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Stochastic petropolitics: The dynamics of institutions in resource-dependent economies

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  • Boucekkine, Raouf
  • Prieur, Fabien
  • Vasilakis, Chrysovalantis
  • Zou, Benteng

Abstract

We investigate the link between resource revenues volatility and institutions. We build a stochastic differential game with two players (conservatives vs. liberals) lobbying for changing the institutions in their preferred directions. First, uncertainty surrounds the dynamics of institutions and the resource revenues. Second, the lobbying power is asymmetric, the conservatives’ power being increasing with resource revenues. We show the existence of a unique equilibrium in the set of affine strategies. We then examine to which extent uncertainty leads to more liberal institutions in the long run, compared to the deterministic case. We finally explore the institutional impact of volatility using a database covering 91 countries over the period 1973–2005. Focusing on financial liberalization, we find that as oil revenue volatility increases, liberalization goes down. This result is robust to different specifications and sample distinctions.

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  • Boucekkine, Raouf & Prieur, Fabien & Vasilakis, Chrysovalantis & Zou, Benteng, 2021. "Stochastic petropolitics: The dynamics of institutions in resource-dependent economies," European Economic Review, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:eecrev:v:131:y:2021:i:c:s0014292120302403
    DOI: 10.1016/j.euroecorev.2020.103610
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    Cited by:

    1. Raoul Bouccekine & Fabien Prieur & Weihua Ruan & Benteng Zou, 2021. "Uncertainty-driven symmetry-breaking and stochastic stability in a generic differential game of lobbying," DEM Discussion Paper Series 21-10, Department of Economics at the University of Luxembourg.
    2. Thornton, John & Vasilakis, Chrysovalantis, 2023. "Bank regulations and surges and stops in credit: Panel evidence," Journal of Financial Stability, Elsevier, vol. 67(C).
    3. Raouf Boucekkine & Rodolphe Desbordes & Paolo Melindi-Ghidi, 2023. "Elite-led revolutions," Working Papers hal-04225397, HAL.

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    More about this item

    Keywords

    Institutional dynamics; Petropolitics; Lobbying games; Stochastic dynamic games; Financial liberalization policies;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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