Political foundations of the resource curse: A simplification and a comment

doi:10.1016/j.jdeveco.2013.09.004

Journal of Development Economics

Volume 106, January 2014, Pages 194-198

https://doi.org/10.1016/j.jdeveco.2013.09.004 Get rights and content

Highlights

•
We simplify a political economy theory of the resource curse.
•
Natural resources increase income when institutions are strong.
•
Natural resources may decease income when institutions are weak.

Abstract

In this note we show how a considerably simpler model than the one in our original JDE 2006 paper generates all the same results. We also acknowledge an error in the specification of a utility function in our previous paper.

Introduction

In the present note we present an alternative reduced-form version of the main model in Robinson et al. (2006) in which all real wages are exogenous. This greatly simplifies the analysis of our original paper while all the results and main intuitions remain valid. In addition we discuss the specification of the utility function in our original paper.

Section 2 presents the formal model and derives its main implications, before Section 3 discusses the utility function of the politician in the original 2006 contribution. Section 4 concludes. Some of the calculations are delegated to the Appendix A.

Section snippets

The formal model — a simpler version

Our model features an incumbent politician wishing to be re-elected, an alternative politician and a unit mass of voters. There are two periods with an election occurring at the end of the first period where the incumbent is challenged by the alternative politician. There is a stock of a non-renewable natural resource and all income from natural resources accrues directly to the government. Though this is not always the case, most of the literature on the resource curse emphasizes that the

An alternative utility function in the 2006 version

In the 2006 paper Eq. (9) specifying the utility function of the incumbent contains a last term showing the utility of the incumbent in case he should fail to win the next election. Rather than the term $(1 - Π (G_{1})) α \frac{1}{2} (- F + H)$ it is more reasonable to let this term be $(1 - Π (G_{1})) α (- G_{1} F + \frac{1}{2} H)$ since the cost of firing F only applies to those that are employed in the public sector in the first period. However then Ψ₂ in the 2006 version becomes 2Π_G(F − H) > 0, which violates the second order conditions. Therefore for

Conclusion

We presented a considerably simpler reduced-form version of the model of our 2006 paper where all the same conclusions hold. In addition we noted that the utility function in the 2006 version is unreasonable and that our original microfoundations would have to be changed in order for the results of our 2006 paper to be valid as stated.

References (7)

Alberto Alesina et al.
Redistributive public employment
J. Urban Econ.
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James A. Robinson et al.
The political foundations of the resource curse
J. Dev. Econ.
(2006)
Daron Acemoglu et al.
Inefficient redistribution
Am. Polit. Sci. Rev.
(2001)

There are more references available in the full text version of this article.

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Citation Excerpt :
The reason is that a boom which increases demand for non-traded goods would increase prices of non-traded goods and shift labour away from the manufacturing sector, and a reduction in labour in the manufacturing sector implies that the economy will lose the benefits of human capital that is generated only in the manufacturing sector. Notable studies that demonstrate resource curse from a rent-seeking perspective include Torvik (2002), Mehlum et al. (2006) and Robinson et al. (2014). Torvik (2002) built a model where an increase in natural resources creates an incentive for entrepreneurs to choose rent seeking over production leading to reduction in output and income.
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^☆: We are grateful for feedback from students and in particular from Kirsten Rasmussen Grebstad. We are also grateful for the suggestions of an anonymous referee.

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Political foundations of the resource curse: A simplification and a comment☆

Highlights

Abstract

Introduction

Section snippets

The formal model — a simpler version

An alternative utility function in the 2006 version

Conclusion

J. Urban Econ.

J. Dev. Econ.

Inefficient redistribution

Am. Polit. Sci. Rev.