Democracy and the curse of natural resources

• Authors: Esther Hauk.
• BSE Working Paper: 1317 | September 15
• Keywords: democracy , Curse of natural resources , political game , revolution , human capital.
• JEL codes: D72, H52, O13.
• democracy
• Curse of natural resources
• political game
• revolution
• human capital.

We propose a theoretical model to explain empirical regularities related to the curse of natural resources. This is an explicitly political model which emphasizes the behavior and incentives of politicians. We extend the standard voting model to give voters political control beyond the elections. This gives rise to a new restriction into our political economy model: policies should not give rise to a revolution. Our model clarifies when resource discoveries might lead to revolutions, namely, in countries with weak institutions. Natural resources may be bad for democracy by harming political turnover. Our model also suggests a non-linear dependence of human capital on natural resources. For low levels of democracy human capital depends negatively on natural resources, while for high levels of democracy the dependence is reversed. This theoretical finding is corroborated in both cross section and panel data regressions.