3 - RESOURCE RENTS AND THE POLITICAL REGIME

Summary

This chapter turns to a formal analysis of the political impact of natural resource wealth. The analysis helps to reconcile the conflicting claims in the previous literature on this topic. On the one hand, in the two related models developed in this chapter, a natural resource boom makes holding political power more valuable because political power entails control over the distribution of resource rents. Consistent with a large literature on the authoritarian effects of resources, rents increase elites' incentives to stage a coup against an existing democracy; under an existing authoritarian regime, rents elevate elites' incentives to counter mobilization from below with repression or targeted transfers of revenue, rather than by democratizing.

On the other hand, the analysis suggests that resource rents can also promote democracy, but through a different mechanism. By driving down the rate at which the poor want to redistribute private income away from elites under democracy, rents decrease the economic cost of democracy to elites. Rents can thus also reduce the incentives of elites to stage coups under existing democracies or to repress popular mobilization rather than democratize under authoritarian regimes. Consistent with recent cross-national empirical work as well as the case-study literature on the evolution of democracy in Venezuela, the models suggest that there may also be a democratic effect of resource rents.

A virtue of the formal models developed in this chapter is that they permit the study of these conflicting political effects of resource rents in a single framework.