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Windfall Gains, Political Economy, and Economic Development

Listed author(s):
  • Dalgaard, Carl-Johan

    ()

    (University of Copenhagen, Department of Economics)

  • Olsson, Ola

    ()

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Natural resource rents and foreign aid have the character of windfall gains that affect economic outcomes both directly and indirectly. Several studies have shown that the indirect effect typically works via institutions like corruption. In this article, we offer a theoretical framework for a joint analysis of how natural resources and aid potentially affect total output in society through rent seeking activities. We survey the existing evidence on both direct and indirect effects of windfalls and provide some new empirical evidence of the association between aid/natural resources and institutions in a large cross-section of countries. Our results suggest that whereas more aid means less corruption, natural resource rents is positively correlated with corruption, although both relationships are nonlinear.

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File URL: http://hdl.handle.net/2077/2690
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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 223.

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Length: 35 pages
Date of creation: 05 Sep 2006
Handle: RePEc:hhs:gunwpe:0223
Contact details of provider: Postal:
Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden

Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/

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  8. Acemoglu, Daron & Robinson, James A & Verdier, Thierry, 2003. "Kleptocracy and Divide-and-Rule: A Model of Personal Rule," CEPR Discussion Papers 4059, C.E.P.R. Discussion Papers.
  9. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
  10. Gylfason, Thorvaldur, 2000. "Natural Resources, Education, and Economic Development," CEPR Discussion Papers 2594, C.E.P.R. Discussion Papers.
  11. Papyrakis, Elissaios & Gerlagh, Reyer, 2004. "The resource curse hypothesis and its transmission channels," Journal of Comparative Economics, Elsevier, vol. 32(1), pages 181-193, March.
  12. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  13. Neary, Hugh M, 1997. "A Comparison of Rent-Seeking Models and Economic Models of Conflict," Public Choice, Springer, vol. 93(3-4), pages 373-388, December.
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  18. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April.
  19. Olsson, Ola, 2007. "Conflict diamonds," Journal of Development Economics, Elsevier, vol. 82(2), pages 267-286, March.
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