Academic journal article Journal of Economic Development

The Rentier Predatory State Hypothesis: An Empirical Explanation of the Resource Curse

Academic journal article Journal of Economic Development

The Rentier Predatory State Hypothesis: An Empirical Explanation of the Resource Curse

Article excerpt

This paper introduces an empirical growth model that explains the perplexing observed growth resource regime dubbed the resource curse. The main hypothesis advanced in this paper, the rentier predatory state hypothesis, holds that under autocracy, the interaction between political power and resource abundance is expected to lead to poor economic outcomes in the long run. In the empirical model, resource abundance is allowed to interact with political repression to generate a negative impact on economic growth. Depending on the extent of the repression, a state dependent on natural resources (a rentier state) can also become a predatory state, i.e., a rentier predatory state, or, in other words, a rentier state with a high rate of political repression. The resulting net effect of resource abundance on economic growth is contingent on the extent of the repression, and a resource-abundant state with a sufficiently high rate of political repression will have negative economic growth, while a state with a low to moderate rate of political repression will have positive economic growth.

Keywords: Rentier Predatory State, Political Repression, Economic Growth, Resource Curse, Developing Countries

JEL classification: O13, O40, P16, P26

(ProQuest: ... denotes formulae omitted.)

1. INTRODUCTION

The slow and negative economic growth that has plagued most natural resource-abundant economies over the past few decades presents a conceptual dilemma to researchers and scholars alike. Indeed, researchers now consider resource wealth bestowed on many nations a curse, referring to the very slow or even negative economic growth experienced by most resource exporting countries over the past few decades. However, despite the documented evidence now that resource abundance appears to hinder economic growth, a puzzling question of why this should be the case remains largely unanswered. In a series of excellent empirical investigations, Sachs and Warner attempt to unravel the potential casual factors behind the poor performance of the resource-abundant economies by considering many possible channels of causation in estimating a standard cross-country growth regression model. In Sachs and Warner (1995a), they controlled for factors that do not appear to be directly related to the resource curse, like terms of trade volatility, trade policy, income inequality, bureaucratic efficiency, investment rates, and regions. Their later empirical study (Sachs and Warner, 1997a) emphasizes the efficiency of legal and governmental institutions, proxied by measures of the rule of law and institutional quality. Furthermore, Sachs and Warner control for possible omitted geography bias by including the growth rate over two previous decades (Sachs and Warner, 1997b) and by including direct measures of geography and climate in their regression equations (Sachs and Warner, 2001). However, none of Sachs and Warner's empirical investigations pins down the channel through which resource abundance adversely affects economic growth.

Prompted by Sachs and Warner's findings, the recent literature on the resource curse emphasizes the roles of (i) rent seeking, (ii) corruption, and (iii) poor institutional quality in attempting to explain the disappointing performance of the resource-abundant economies. Kronenberg (2004), for instance, attributes the curse in the former Eastern Bloc to corruption. However, this variable's influence on economic growth was found to be positive, though it was never a significant explanatory variable in his growth regression equations. More recently, Bhattacharyya and Holder (2008) find that natural resources foster corruption in less democratic states. Sala-i-Martin and Subramnian (2003), Murshed (2004), and Isham et al. (2005), associate point-source natural resources (those extracted from narrow geographic or economic base such as oil, minerals, and plantation crops) with higher rates of rent seeking, corruption, and weak public institutions, which are, in turn, associated with slower growth rates. …

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