Relationship between natural resources and institutions
This article analyses through a rent seeking model, the relationship between institutions' quality and natural resources. Depending on the institutions quality, each country has a specific structural capacity to stand natural resources dependency. It is shown that for each country, a threshold exists, such that beyond this point, any additional amounts of natural resources begin to have a negative impact on institutions. As the stock of natural resources increases, this improves the expected profitability of rent seeking, which in turn lowers the quality of institutions. The mechanism comes from a new balance of power within the country. However, the institutional degradation's intensity is determined by social interactions and depends on both the resources nature and their appropriability level. The inverse U-shaped curve obtained from empirical studies presented in this article supports the natural resources non-monotonic effect on institutions found in the model.
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