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The curse of natural resources in fractionalized countries

  • Hodler, Roland

This paper develops a model that can explain why natural resources are a curse for some countries, but not for others. In this model, natural resources cause fighting activities between rivalling groups. Fighting reduces productive activities and weakens property rights, making productive activities even less attractive. The aggregate production decrease exceeds the natural resources' direct positive income effect if and only if the number of rivalling groups is sufficiently large. The model thus predicts that natural resources lower incomes in fractionalized countries, but increase incomes in homogenous countries. Empirical evidence that supports this hypothesis is provided

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 50 (2006)
Issue (Month): 6 (August)
Pages: 1367-1386

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Handle: RePEc:eee:eecrev:v:50:y:2006:i:6:p:1367-1386
Contact details of provider: Web page: http://www.elsevier.com/locate/eer

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