On the Looting of Nations

46 Pages Posted: 22 Jul 2008 Last revised: 3 Jun 2009

See all articles by Mare Sarr

Mare Sarr

University of Cape Town - School of Economics

Erwin H. Bulte

Tilburg University - Department of Economics; Wageningen University

Christopher M. Meissner

University of Cambridge - Faculty of Economics and Politics; National Bureau of Economic Research (NBER)

Timothy M. Swanson

University College London - Department of Economics and Faculty of Law

Date Written: July 1, 2008

Abstract

We develop a dynamic discrete choice model of a self-interested and unchecked ruler making decisions regarding the development of a resource rich country. Resource wealth serves as collateral and facilitates the acquisition of loans. The ruler makes the recursive choice of either staying in power to live off the productivity of the country while facing the risk of being ousted, or looting the country's riches by liquefying the natural assets through external lending. We show that 1) unstructured lending from international credit markets can enhance the ruler's ability to liquefy assets, and create incentives to loot the country's wealth; and 2) an enhanced likelihood of looting reduces tenures (greater political instability), increases indebtedness, reduces investment, and diminishes growth. We test these predictions using a treatment effects model and find strong empirical evidence that instability caused by unsound lending to unchecked rulers of resource rich countries may result in slow economic growth.

Keywords: Debt, Autocracy, Sovereign Lending, Political Instability, Resource Curse

JEL Classification: F34, G15, H63, K42, Q34

Suggested Citation

Sarr, Mare and Bulte, Erwin H. and Meissner, Christopher M. and Swanson, Timothy M., On the Looting of Nations (July 1, 2008). Available at SSRN: https://ssrn.com/abstract=1163016 or http://dx.doi.org/10.2139/ssrn.1163016

Mare Sarr

University of Cape Town - School of Economics ( email )

Private Bag X3
Rondebosch, Cape Town 7701
South Africa
+27 (0)21 650 2982 (Phone)

HOME PAGE: http://https://sites.google.com/site/sarrmare/

Erwin H. Bulte

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 9111 (Phone)

Wageningen University

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6706 KN
Wageningen
Netherlands

Christopher M. Meissner

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

HOME PAGE: http://www.econ.cam.ac.uk/faculty/meissner/index.htm

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Timothy M. Swanson (Contact Author)

University College London - Department of Economics and Faculty of Law ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom
+44 (020) 7-679-58 (Phone)
+44 (020) 7-6016-2772 (Fax)

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