Leader Behaviour and the Natural Resource Curse

Posted: 23 Sep 2009

See all articles by Francesco Caselli

Francesco Caselli

London School of Economics & Political Science (LSE) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Thomas Cunningham

London School of Economics & Political Science (LSE)

Date Written: October 2009

Abstract

We discuss political economy mechanisms which can explain the resource curse, in which an increase in the size of resource rents causes a decrease in the economy's; total value added. We identify a number of channels through which resource rents will alter the incentives of a political leader. Some of these induce greater investment by the leader in assets that favour growth (infrastructure, rule of law, etc.), others lead to a potentially catastrophic drop in such activities. As a result, the effect of resource abundance can be highly non-monotonic. We argue that it is critical to understand how resources affect the leader's ‘survival function’, i.e. the reduced-form probability of retaining power. We also briefly survey decentralized mechanisms, in which rents induce a reallocation of labour by private agents, crowding out productive activity more than proportionately. We argue that these mechanisms cannot be fully understood without simultaneously studying leader behaviour.

JEL Classification: O13, D72, Q32, Q34

Suggested Citation

Caselli, Francesco and Cunningham, Thomas, Leader Behaviour and the Natural Resource Curse (October 2009). Oxford Economic Papers, Vol. 61, Issue 4, pp. 628-650, 2009. Available at SSRN: https://ssrn.com/abstract=1477246 or http://dx.doi.org/gpp023

Francesco Caselli (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Thomas Cunningham

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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