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Windfall Gains, Political Economy and Economic Development

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  • Carl-Johan Dalgaard
  • Ola Olsson

Abstract

Natural resource rents and foreign aid have the character of windfall gains that affect economic outcomes both directly and indirectly. Several studies have shown that the indirect effect typically works via institutions like corruption. In this article, we offer a theoretical framework for a joint analysis of how natural resources and aid potentially affect total output in society through rent-seeking activities. We survey the existing evidence on both direct and indirect effects of windfalls and provide some new empirical evidence of the association between aid/natural resources and institutions in a large cross-section of countries. Our results suggest that whereas more aid means less corruption, natural resource rents is positively correlated with corruption, although both relationships are non-linear. Copyright The author 2008. Published by Oxford University Press on behalf of the Centre for the Study of African Economies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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Bibliographic Info

Article provided by Centre for the Study of African Economies (CSAE) in its journal Journal of African Economies.

Volume (Year): 17 ()
Issue (Month): suppl_1 ()
Pages: -109

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Handle: RePEc:oup:jafrec:v:17:y::i:suppl_1:p:-109

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Cited by:
  1. Francesco Caselli & Guy Michaels, 2009. "Do oil windfalls improve living standards?: evidence from Brazil," LSE Research Online Documents on Economics 28691, London School of Economics and Political Science, LSE Library.
  2. Keith Blackburn & Gonzalo F. Forgues-Puccio, 2011. "Foreign Aid – A Fillip for Development or a Fuel for Corruption?," Development Research Working Paper Series 09/2011, Institute for Advanced Development Studies.
  3. Dalgaard, Carl-Johan, 2008. "Donor policy rules and aid effectiveness," Journal of Economic Dynamics and Control, Elsevier, vol. 32(6), pages 1895-1920, June.
  4. Francesco Caselli & Andrea Tesei, 2011. "Resource Windfalls, Political Regimes, and Political Stability," NBER Working Papers 17601, National Bureau of Economic Research, Inc.
  5. Congdon Fors, Heather & Olsson, Ola, 2005. "Endogenous Institutional Change After Independence," Working Papers in Economics 163, University of Gothenburg, Department of Economics.

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