Does export underreporting contribute to the resource curse?

Abstract

Since the 1970s, resource-exporting countries have tended to develop more slowly, a phenomenon known as the resource curse. The literature suggests that governance problems and extractible resources exacerbate the curse by diverting talent, effort, and funds into conflict, corruption, and patronage. In this paper, I argue that another mechanism may be export underreporting and capital flight, which can reduce savings, fiscal revenues, and foreign exchange. I present an economic model of underreporting and show that primary export revenues, fiscal revenues, and GDP are 30–50 % less responsive to global commodity prices in autocratic countries. The effects are concentrated in extractive industries and not restricted to oil exporters. The facts that developing countries tend to tax the primary sector and the incentive to underreport should be larger in autocracies − where firms are less accountable to citizens − suggest that primary exports may be underreported, which might contribute to the resource curse.