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Abstract

Old elites can block changes, but not all do. Why is it that stronger elites may allow more changes than weaker elites? Why do economies with larger stocks of natural resources not grow faster than economies poorer in natural resources? We argue that old elites hold some power to extract rents from the economy. Whereas old sectors (i.e. agriculture or extraction of natural resources) are not affected by rent extraction, modern sectors require investments that do react to rent extraction. At the same time, a modern sector relies on networks of firms. These structures form the basis of political power of a new elite, which reduces the ability of the old elite to extract rents. We show that countries rich in natural resources provide their old elite with incentives to extract rents so high that the private sector has no incentives to build up a modern economy. If the old elite is either politically very strong or the natural resource sector is small compared to the potential of the modern sector, the old elite will choose to extract smaller rents from a growing sector. Some empirical evidence completes the paper.

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Bibliographic Info

Paper provided by School of Economics and Finance, Queensland University of Technology in its series Paul Frijters Discussion Papers with number 2004-1.

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Date of creation: 15 Jun 2004
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Handle: RePEc:qut:pfrijt:2004-1

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Web page: http://www.bus.qut.edu.au/faculty/economics/
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Find related papers by JEL classification:

• H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
• O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
• O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
• D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

References

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1. Stephen L. Parente & Edward C. Prescott, 1997. "Monopoly rights: a barrier to riches," Staff Report 236, Federal Reserve Bank of Minneapolis.
   
   • Edward C. Prescott & Stephen L. Parente, 1999. "Monopoly Rights: A Barrier to Riches," American Economic Review, American Economic Association, vol. 89(5), pages 1216-1233, December.
2. James A. Robinson & Daron Acemoglu, 2000. "Political Losers as a Barrier to Economic Development," American Economic Review, American Economic Association, vol. 90(2), pages 126-130, May.
3. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
4. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
   
   • Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
   • Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
   • Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
   • Aghion, P. & Tirole, J., 1997. "Formal and real authority in organizations," Open Access publications from University College London http://discovery.ucl.ac.u, University College London.
   • Aghion, Philippe & Tirole, Jean, 1994. "Formal and Real Authority in Organizations," IDEI Working Papers 37, Institut d'Économie Industrielle (IDEI), Toulouse.
5. Daron Acemoglu & James A. Robinson, 2000. "Why Did The West Extend The Franchise? Democracy, Inequality, And Growth In Historical Perspective," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1167-1199, November.
   
   • Acemoglu, Daron & Robinson, James A, 1998. "Why did the West Extend the Franchise? Democracy, Inequality and Growth in Historical Perspective," CEPR Discussion Papers 1797, C.E.P.R. Discussion Papers.
6. Hahn, Sunku, 2003. "Why should reform wait until things get really bad?," Economics Letters, Elsevier, vol. 79(3), pages 345-352, June.
7. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306, November.
8. Daron Acemoglu, 2002. "Why Not a Political Coase Theorem? Social Conflict, Commitment and Politics," NBER Working Papers 9377, National Bureau of Economic Research, Inc.
   
   • Acemoglu, Daron, 2003. "Why not a political Coase theorem? Social conflict, commitment, and politics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 620-652, December.
9. Daron Acemoglu & James A. Robinson, 2001. "A Theory of Political Transitions," American Economic Review, American Economic Association, vol. 91(4), pages 938-963, September.
   
   • Daron Acemoglu & James Robinson, 1999. "A Theory of Political Transitions," Working papers 99-26, Massachusetts Institute of Technology (MIT), Department of Economics.
   • Acemoglu, Daron & Robinson, James A, 1999. "A Theory of Political Transitions," CEPR Discussion Papers 2277, C.E.P.R. Discussion Papers.
10. Daron Acemoglu & James A. Robinson, 2002. "Economic Backwardness in Political Perspective," NBER Working Papers 8831, National Bureau of Economic Research, Inc.
    
    • Acemoglu, Daron & Robinson, James A, 2002. "Economic Backwardness in Political Perspective," CEPR Discussion Papers 3261, C.E.P.R. Discussion Papers.

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:

1. Will the resource curse stifle democracy in Libya?
   by Paul Frijters in Core Economics on 2011-08-23 05:24:43
2. Will the resource curse stifle democracy in Libya?
   by Paul Frijters in Club Troppo on 2011-08-23 05:23:19

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Cited by:

1. James C. Rockey, 2007. "Which Democracies Pay Higher Wages?," Bristol Economics Discussion Papers 07/600, Department of Economics, University of Bristol, UK.
   
   • James Rockey & Miltiadis Makris, 2010. "Which Democracies Pay Higher Wages?," Discussion Papers in Economics 11/09, Department of Economics, University of Leicester.

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