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Resource Windfalls, Political Regimes, and Political Stability

  • Francesco Caselli
  • Andrea Tesei

We study theoretically and empirically whether natural resource windfalls affect political regimes. We document the following regularities. Natural resource windfalls have no effect on the political system when they occur in democracies. However, windfalls have significant political consequences in autocracies. In particular, when an autocratic country receives a positive shock to its flow of resource rents it responds by becoming even more autocratic. Furthermore, there is heterogeneity in the response of autocracies. In deeply entrenched autocracies the effect of windfalls on politics is virtually nil, while in moderately entrenched autocracies windfalls significantly exacerbate the autocratic nature of the political system. To frame the empirical work we present a simple model in which political incumbents choose the degree of political contestability by deciding how much to spend on vote-buying, bullying, or outright repression. Potential challengers decide whether or not to try to unseat the incumbent and replace him. The model uncovers a reason for the asymmetric impact of resource windfalls on democracies and autocracies, as well as the differential impact within autocratic regimes.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1091.

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Date of creation: Nov 2011
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Handle: RePEc:cep:cepdps:dp1091
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Francesco Caselli & Wilbur John Coleman II, 2008. "On the Theory of Ethnic Conflict," CEDI Discussion Paper Series 08-08, Centre for Economic Development and Institutions(CEDI), Brunel University.
  2. Paul J. Burke & Andrew Leigh, 2010. "Do Output Contractions Trigger Democratic Change?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 124-57, October.
  3. Markus Brückner & Antonio Ciccone & Andrea Tesei, 2013. "Oil Price Shocks, Income, and Democracy," Working Papers 2013-18, FEDEA.
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  8. 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.
  9. Kevin K. Tsui, 2011. "More Oil, Less Democracy: Evidence from Worldwide Crude Oil Discoveries," Economic Journal, Royal Economic Society, vol. 121(551), pages 89-115, March.
  10. Barro, Robert J., 1999. "Determinants of Democracy," Scholarly Articles 3451297, Harvard University Department of Economics.
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  12. Dalgaard, Carl-Johan & Olsson, Ola, 2006. "Windfall Gains, Political Economy, and Economic Development," Working Papers in Economics 223, University of Gothenburg, Department of Economics.
  13. Antonio Ciccone, 2013. "Estimating the Effect of Transitory Economic Shocks on Civil Conflict," Review of Economics and Institutions, Università di Perugia, vol. 4(2).
  14. Timothy Besley & Masayuki Kudamatsu, 2006. "Health and Democracy," American Economic Review, American Economic Association, vol. 96(2), pages 313-318, May.
  15. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
  16. David I. Harvey & Neil M. Kellard & Jakob B. Madsen & Mark E. Wohar, 2010. "The Prebisch-Singer Hypothesis: Four Centuries of Evidence," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 367-377, May.
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