Political transition in resource economies

Abstract

This paper explains the lack of democratization in resource‐ exporting countries using a two‐period resource extraction model. There are two classes of agents: the elite who own capital and natural resources, and citizens who own labor. Government policies are designed to ensure that the elite remain in power and that citizens do not have the incentive to revolt. On the other hand, policies in the democracy case are not constrained by the threat of revolution. Compared to the democratic case, the resource is over‐extracted and the investment is lower. Non‐democratic institutions are the rational choice of the elite.