Rentier States, International Finance, and Governance

76 Pages Posted: 9 Dec 2018

Date Written: August 25, 2018

Abstract

The political-science literature is divided on the relationship between resource rents and politics. This may be related to its narrow focus on democracy and on the domestic influences upon governance outcomes. This paper argues that rents are in fact damaging, on balance, but that we need to look at political outcomes beyond democracy while taking account of international causal pathways as well as domestic ones. It also uses the new ICTD dataset while employing regressions with unit fixed effects to avoid omitted-variable bias, The analysis yields two main results. First, a “resource curse” on governance does exist, but in the short term it has more to do with state capacity, corruption, and economic freedom than with democracy or civil liberties. Second, it appears that many of the negative effects of resource abundance are associated with the relaxation of the foreign-exchange constraint — that is, we see them on the current account balance variable more often than on the rents variables. In regressions with five-year lags, the current-account balance appears to constitute the dominant negative influence on democracy and civil liberties — although these effects are not robust to changes in lag length. The main results hold for two measures of resource rents and are robust to the exclusion of observations from the Middle East and North Africa, or observations prior to 1981, and to a “difference GMM” dynamic panel-data analysis.

Suggested Citation

Mahon, James Edward, Rentier States, International Finance, and Governance (August 25, 2018). Available at SSRN: https://ssrn.com/abstract=3284717 or http://dx.doi.org/10.2139/ssrn.3284717

James Edward Mahon (Contact Author)

Williams College ( email )

Williamstown, MA 01267
United States

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