THE DIFFERENT IMPACTS OF DIFFERENT TYPES OF NATURAL RESOURCES ON POLITICAL INSTITUTIONS IN DEVELOPING COUNTRIES

Abstract

1.INTRODUCTIONThere is now a large consensus that the quality of institutions is a pillar of economic development, alongside other important determinants such as geography, human capital, and openness (Knack and Keefer, 1995; Mauro, 1995; La Porta et al., 1999; Acemoglu et al., 2005; Rodrik, 2005; Kanyama, 2014).1 However, the determinants of the quality of institutions are still being debated. Acemoglu et al. (2005) argue that groups which win political power choose institutions that serve their interest, and that political power mainly depends on the distribution - or capture - of economic resources.2 In this paper we focus on natural resource endowment as a strong structural characteristic of economic resource distribution and institutional change in developing countries.The literature broadly supports the idea that rents from natural are harmful to institutional quality in developing countries (see Frankel, 2010; Van der Ploeg, 2011 for recent reviews). Firstly, appropriation disputes explain why natural can encourage rent-seeking, corruption, or conflicts (Boschini et al., 2007). Secondly, governments can also suffer from the so-called rent of natural through (i) taxation, (ii) spending, and (iii) group formation (Ross, 2001; Omgba, 2009). The effect suggests that when governments derive sufficient revenues from natural resources, they tax their population less heavily. In turn, the population is less likely to demand accountability from, and representation in, the government, following the so-called principle of no representation without taxation (Tilly, 1975). The spending effect suggests that rents lead to patronage, which dampens latent pressures for democratization (Atkinson and Hamilton, 2003; Vicente, 2010). The group formation effect suggests that the government will use its largesse to prevent the formation of contestant groups (Mahdavy, 1970; Anderson, 1987; Ross 2001; Andersen and Aslaksen, 2013).However, the concept of rentier states suggests that different types of natural could have different impacts on the quality of institutions. The idea is that natural differ in their ease of appropriation (or capturability of the rent), inducing a more or less unequal distribution of the rent. Thus, Bulte et al. (2005) distinguish between point resources and Point generate rents that can be more easily captured, and so are more harmful to the quality of institutions than diffuse resources. Similarly, Boschini et al. (2007) focus on the technical appropriability of a resource. They argue that such as diamonds or precious metals are easily transportable, storable and saleable, and are therefore more detrimental than agricultural products. Petermann et al. (2007) consider that rents from oil are more harmful than those derived from forests, because oil involves contracts of higher value and is more technology-intensive. Engerman and Sokoloff (1997) and Ross (2001) pointed out that oil rents are more likely to degrade institutional quality because they are easily captured by the central government (see also Robinson et al., 2014). Conversely, mineral or agricultural rents may contribute to improving the quality of institutions because they can be captured by a larger share of the population.We investigate whether rents generated by natural have a detrimental effect on institutions, by considering different types of natural characterized by their different degree of appropriability. Taking advantage of a large dataset covering developing countries, we use appropriate techniques for panel data (Fixed Effects model, GMM-System and 2SLS estimators) in order to take into account unobserved heterogeneities, endogeneity of rents, and institutional persistence. Panel data offer a solution to the endogeneity problem through the use of lagged values as instruments for endogenous variables (Lederman and Maloney, 2006). …