Resource rents, subsoil wealth and democracy: diagnosing the relationship: 1970-2014

Abstract

The paper has two goals. The first is to establish if institutions are likely to manage resource revenue effectively and contribute to economic development in countries with greater resource abundance (RA); the second is to estimate a model to explain the mechanisms of the resource curse (RC) during the energy and commodity booms of 1970-2014. Four results explain how the RA harnesses economic development, 1) how natural capital and subsoil wealth levels are associated to a healthier democracy mitigating the RC; 2) how resource rents are negatively associated to institutional quality via stronger rule of law; 3) how economic growth is associated to resource abundance and 4) how excessive resource dependence translates into a negative GDP growth rate but not always. In the short run and across the world the fall in the GDP growth rate is associated to large scale extraction and export of resources. Policy responses are suggested.