Resource Curse and Power Balance: Evidence from Iran

Abstract

Empirical research shows that natural resources have a detrimental effect on economic growth, a phenomenon known as the “resource curse”. Competition between influence groups for access to the resource rents, that is, rent-seeking, is often blamed for this curse. In this article, we dig deeper into the link between political competition and the resource curse by studying the case of Iran from 1960 to 2007. We present a theoretical model demonstrating how the effect of rents on the economy depends on the balance of political power. The model shows that an increase in rents may lead to a sharp reduction in income when the distribution of power between influence groups is relatively balanced. The empirical evidence confirms the predictions of the model.