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Windfall Gains, Political Economy, and Economic Development

  • 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
Date of revision:
Handle: RePEc:hhs:gunwpe:0223
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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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