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From curse to blessing? institutional reform and resource booms in Colombia

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  • Gallego, Jorge
  • Maldonado, Stanislao
  • Trujillo, Lorena

Abstract

Is it possible to reverse the resource curse through institutional reform? Evidence suggests that there is a negative relationship between abundance of natural resources and economic growth, political stability, democracy, and peace. However, evidence illustrating how institutional reform can reverse this situation is scarce. In this paper, we exploit a component of an institutional reform that modified the allocation rule of oil royalties in Colombia and evaluate a set of effects of this reform on the living standards of Colombian households. Using international variations in the price of oil for identification, we find that the reform had important effects on several household welfare indicators. We find positive impacts on important dimensions, such as reductions in multidimensional poverty and improvements on income, employment, housing conditions, health, and education, among others. Results are mixed or null in other outcomes, such as formality or employment in the service sector. Importantly, we find no effects on monetary poverty but larger income effects for rich and urban households. We test for the different channels boosting these effects and provide tentative evidence that supports the role of fiscal and administrative capacity mechanisms.

Suggested Citation

  • Gallego, Jorge & Maldonado, Stanislao & Trujillo, Lorena, 2020. "From curse to blessing? institutional reform and resource booms in Colombia," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 174-193.
  • Handle: RePEc:eee:jeborg:v:178:y:2020:i:c:p:174-193
    DOI: 10.1016/j.jebo.2020.07.006
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    3. Alejandro Ome & Gerson Javier Pérez-Valbuena, 2022. "Natural Resource Windfalls: Effects in Non-producing Areas," Documentos de trabajo sobre Economía Regional y Urbana 313, Banco de la Republica de Colombia.
    4. Marek Szturo & Bogdan Włodarczyk & Alberto Burchi & Ireneusz Miciuła & Karolina Szturo, 2021. "Improving Relations between a State and a Business Enterprise in the Context of Counteracting Adverse Effects of the Resource Curse," Sustainability, MDPI, vol. 13(3), pages 1-14, January.
    5. Parra-Cely, Sergio & Zanoni, Wladimir, 2022. "The Labor Market Worsening Effects of a Resource Bust: Evidence from the Crude Oil Price Shock in Ecuador," IDB Publications (Working Papers) 12268, Inter-American Development Bank.
    6. Ome, Alejandro & Pérez, Javier, 2022. "Natural Resource Windfalls In Nonproducing Areas," IDB Publications (Working Papers) 12287, Inter-American Development Bank.
    7. Konte, Maty & Vincent, Rose Camille, 2021. "Mining and quality of public services: The role of local governance and decentralization," World Development, Elsevier, vol. 140(C).
    8. Narantungalag, Odmaa, 2022. "The effects of natural resource extraction on household expenditure patterns: Evidence from Mongolia," GLO Discussion Paper Series 1077, Global Labor Organization (GLO).
    9. Saavedra, Santiago & Romero, Mauricio, 2021. "Local incentives and national tax evasion: The response of illegal mining to a tax reform in Colombia," European Economic Review, Elsevier, vol. 138(C).

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