Natural Resources and Political Regimes

  
Research in this area includes work by Francesco Caselli and Andra Tesei

Casual observation seems to indicate that abundance in natural resources can shape the political outcome in many countries.

CEP member Francesco Caselli and coauthor Andra Tesei explore this link both from a theoretical and an empirical point of view. They focus on the following regularity: Natural resource windfalls have no effect on the political system when they occur in democracies. However, windfalls have significant political consequences in autocracies. In particular, when an autocratic country receives a positive shock to its flow of resource rents it responds by becoming even more autocratic. Importantly, there is heterogeneity in the response of autocracies. In deeply entrenched autocracies the effect of windfalls on politics is virtually nil. It is only in moderately entrenched autocracies that windfalls exacerbate the autocratic nature of the political system. Hence, their evidence generalizes casual observation: windfalls have little or no impact in democracies or very stable autocracies, but change the political equilibrium in more unstable autocracies.

First they build a model of political competition in which the incumbent government can use the resources coming from the natural endowment of the country to enhance its ability to retain power or for private consumption. The latter is the prize for being in power, whereas the former gives a measure of the autocracy of the political system. They show that in such an environment there is a positive relation between the availability of natural resources and the level of autocracy.

Empirical evidence

In order to map the model into the data they measure the level of autocracy with the Polity2 variable in the Polity IV database (Marshall and Jaggers 2005), which ranks countries according to the democracy of their institutions. For the natural resource availability they assign to each country the commodity which gives it the largest value of exports and match it with an annual time series of that commodity’s world price. They study changes over the period 1962-2009. The baseline sample consists of 131 countries with information on both principal-commodity export shares and polity2 scores. Thus the one-year change in the polity2 variable is regressed on the average growth rate in the price of the principal commodity over a three-year window.

The baseline specification does not show any interaction between the two variables, yet this due to the fact that in democracies a natural resource windfall has no effect on the contestability of the political system. Indeed when looking at the differential effect of a windfall in democratic and autocratic countries they find that the latter tend to become harsher in correspondence with an increase in their main commodity’s price. Moreover the strength of this response is decreasing in the level of entrenchment of a given autocracy.

For further reading please see:

Resource Windfalls, Political Regimes, and Political Stability”, (Francesco Caselli and Andrea Tesei), CEP Discussion Paper No 1091, November 2011.