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Leader Behavior and the Natural Resource Curse

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  • Francesco Caselli
  • Tom Cunningham

Abstract

We discuss political economy mechanisms which can explain the resource curse, in which an increase in the size of resource rents causes a decrease in the economy's total value added. We identify a number of channels through which resource rents will alter the incentives of a political leader. Some of these induce greater investment by the leader in assets that favour growth (infrastructure, rule of law, etc.), others lead to a potentially catastrophic drop in such activities. As a result, the effect of resource abundance can be highly non-monotonic. We argue that it is critical to understand how resources affect the leader's 'survival function', i.e. the reduced-form probability of retaining power. We also briefly survey decentralised mechanisms, in which rents induce a reallocation of labour by private agents, crowding out productive activity more than proportionately. We argue that these mechanisms cannot be fully understood without simultaneously studying leader behaviour.

Suggested Citation

  • Francesco Caselli & Tom Cunningham, 2009. "Leader Behavior and the Natural Resource Curse," CEP Discussion Papers dp0913, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0913
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    Keywords

    Natural resource endowment; resource curse; political economy;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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