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Economic Foundation of Dictatorship in Resource Exporting Economies

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  • Atallah, Samer

Abstract

This paper explains the lack of democratization in resource exporting countries using a two period resource extraction model. There are two classes of agents: elite who own capital and natural resources and citizens who own labor. The elite announce, in the rst period, their plans for resource extraction and investment in the economy. Citizens, in the second period, decide whether to conduct a revolution against elite to capture their share of rents from un-extracted resources. Government policies are designed to ensure that the elite remain in power and that citizens do not have the incentive to revolt. These policies subsidize extraction and investment during the rst period. The extraction subsidy reduces the benet of revolution while the investment subsidy increases its cost. On the other hand, policies in the democracy case are not constrained by the revolution threat and represent the median voter preferences. The resource is over extracted in the non-democratic case compared to the democratic case. Also, investment in the non-resource sector is lower. The important nding of the model is that extraction path goes against price signals; rst period extraction increases with the increase of the resource price in the second period. Non-Democratic institution is the rational choice of the elite even with the costly policies to prevent a revolution.

Suggested Citation

  • Atallah, Samer, 2010. "Economic Foundation of Dictatorship in Resource Exporting Economies," MPRA Paper 27318, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:27318
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    File URL: https://mpra.ub.uni-muenchen.de/27318/1/MPRA_paper_27318.pdf
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    References listed on IDEAS

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    1. Brunnschweiler, Christa N. & Bulte, Erwin H., 2008. "The resource curse revisited and revised: A tale of paradoxes and red herrings," Journal of Environmental Economics and Management, Elsevier, vol. 55(3), pages 248-264, May.
    2. Halvor Mehlum & Karl Moene & Ragnar Torvik, 2006. "Institutions and the Resource Curse," Economic Journal, Royal Economic Society, vol. 116(508), pages 1-20, January.
    3. Daron Acemoglu & James A. Robinson, 2001. "A Theory of Political Transitions," American Economic Review, American Economic Association, vol. 91(4), pages 938-963, September.
    4. Hodler, Roland, 2006. "The curse of natural resources in fractionalized countries," European Economic Review, Elsevier, vol. 50(6), pages 1367-1386, August.
    5. Robinson, James A. & Torvik, Ragnar & Verdier, Thierry, 2006. "Political foundations of the resource curse," Journal of Development Economics, Elsevier, vol. 79(2), pages 447-468, April.
    6. Acemoglu,Daron & Robinson,James A., 2009. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521671422, April.
    7. Baland, Jean-Marie & Francois, Patrick, 2000. "Rent-seeking and resource booms," Journal of Development Economics, Elsevier, vol. 61(2), pages 527-542, April.
    8. repec:cup:apsrev:v:53:y:1959:i:01:p:69-105_00 is not listed on IDEAS
    9. Francesco Caselli & Tom Cunningham, 2009. "Leader behaviour and the natural resource curse," Oxford Economic Papers, Oxford University Press, vol. 61(4), pages 628-650, October.
    10. Philip Arestis & Andrew Brown & Malcolm Sawyer, 2001. "The Euro," Books, Edward Elgar Publishing, number 2294.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    resource curse; political transition; institutions;

    JEL classification:

    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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