Why Do Countries Become/Remain Democracies? Or Don’t? (8): The Resource Curse

I’ve written before on the so-called resource curse: the fact that some countries with lots of natural resources tend to do worse than countries with less resource wealth, worse in two respects: less economic growth and prosperity and less political stability and respect for basic rights.

I’ve also tried to list some of the possible reasons why reliance on natural resources inhibits development, political and institutional stability, anti-corruption efforts and legal protection for human rights.

Now, the important thing to stress here is that reliance on resources can lead to negative consequences, but doesn’t necessarily have to. Not all resource-rich countries are “cursed”. There’s a paper here arguing

that the natural resource curse burdens non-democracies, but countries with better democratic institutions are not corrupted by such endowments. For governments accountable to their citizens, resources can be a blessing.

The figure below, from the same paper, plots a measure of resource dependence against the Political Risk Service’s corruption index (all data for 1990) – corruption being an indicator of the resource curse. The figure does not demonstrate that there’s a linear relationship between higher levels of corruption (lower index value on the y-axis) and natural resources (higher value on the x-axis). The fitted line does have a slight rightward slope, but the dispersion of countries is very wide. Norway and Iraq are more or less on the same level of resources, but on opposite extreme of corruption, and the same is true for many other countries.

So, natural resources do not produce corruption or a resource curse in any mechanical or deterministic way. Some third element is necessary for the curse to take place. The paper cited above argues

that strong democratic institutions help to moderate the effect of natural resources on corruption. In figures [below], we split the sample into democratic and non-democratic countries. These suggest that the negative relationship between natural resources and the corruption index prevails in the sample of non-democratic countries but not in the sample of democratic countries… the relationship between natural resource rent and corruption depends on the quality of the democratic institutions… These findings imply that resource-rich countries have a tendency to be corrupt, because resource windfalls encourage their governments to engage in rent seeking. However, history shows that countries discovering natural resources after they have established well-functioning democratic institutions tend to handle the scourge of corruption much better.

More on the related topic of good governance.