Resource Curse and Power Balance: Evidence from Oil-Rich Countries
Publisher: World Development
Author(s): Friedrich Schneider, Kjetil Bjorvatn, and Mohammad Reza Farzanegan
Date: 2012
Topics: Extractive Resources, Governance
In this paper, we examine the role of political fractionalization for the “resource curse” hypothesis in oil rich economies. Using panel data for 30 oil-rich countries from 1992-2005, we find a positive direct relationship between oil rents and income. However, this positive effect is moderated by factional politics. This suggests that the resource curse does not emerge from oil revenues per se but from the rent seeking of political factions. Our basic results hold when we control for the effects of other determinants of income, time varying common shocks, and country-fixed effects. It is also robust to various alternative measures resource abundance and inclusion of the quality of democratic institutions, as well as to the instrumental variable method of estimation (system and differenced GMM) and across different samples.