What resource curse? The null effect of remittances on public good provision

Abstract

Existing formal models show that remittances generate a resource curse by allowing the government to appropriate its revenues toward rents, rather than public good provision. Households spend their remittance income on public-good substitutes, thereby alleviating the pressure on the government to provide public goods. However, the process by which the government survives the implicit threat of political challengers remains unspecified. By explicitly modeling political competition, I show that there is actually no resource curse from remittances. When there are challengers who can threaten to replace the incumbent leader, the best that any challenger can do is to offer not to take advantage of households’ provision of public-good substitutes, which induces the incumbent to try to match the offer. In equilibrium, public good provision is independent of remittances. This result holds even when no challenger can credibly commit to maintaining her offer once she is in power.