Is Separation of Powers a Remedy for the Resource Curse? Firm Licensing, Corruption and Mining Development in Post-War Kosovo

Abstract

This article argues that the high levels of corruption and rent-seeking typically observed in resource-rich countries are often caused by a sub-optimal separation of powers amongst state regulators responsible for firm licensing. To establish this point, I develop a transaction cost account of corruption and rent-seeking in mining-sector licensing systems, showing that due to transaction costs different allocations of institutional mandates give rise to differential incentives for corruption and rent-seeking. By critically assessing and elaborating the World Bank's thinking on mining-sector reform, I generate normative prescriptions to optimise the separation of powers in licensing regimes. I also treat this model of corruption and rent-seeking positively and I test it through an empirical case study of Kosovo. In the newly independent Balkan country, recent legal reforms have introduced a sub-optimal allocation of regulatory competences. The structure of transaction costs that resulted explains the growing emergence of rentierism. Crucially, these regressive reforms are shown to have retarded the growth of the country's mining sector.