Natural Resource Wealth is Bad for Democracy
There is growing interest in the idea that bad governance often results when states are financed not from taxing their citizens, but from 'unearned income' derived either from large mineral resources or, less significantly, large aid inflows.
The arguments are summarized in Moore (2001). Oil revenues are especially important because they are the dominant source of 'unearned income' for states worldwide. There are some excellent country case studies supporting the notion that oil wealth is politically corrosive - for example, Karl (1997) on Venezuela, and Vanderwalle (1998) on Libya.
However, we have until recently lacked statistical evidence. Michael Ross has changed that. Using careful cross-national statistical evidence relating to 113 countries over the period 1971-97, he shows that, all else being equal:
These findings are consistent with most current theory. Ross also squeezes the data to test three different explanations for adverse effect of mineral wealth on democracy:
We are now fairly clear on the fact that, all else being equal, significant natural resource wealth tends to damage political institutions. We have some idea of the reasons why this happens, but cannot claim to understand them fully, or to weigh one cause against another. We have scarcely any idea of what to do about the problem! Natural resource wealth will not be left untouched for fear of adverse political consequences. What kinds of politically-feasible institutional arrangements might mitigate its worst effects?
Keywords: democracy, oil, natural resources.
Commentator: Mick Moore, IDS (November 2001).
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