Democracy and resource rents

This paper examines the relationship between democracy and natural resource rents. In our political economy model we allow for two dimensions of democracy: electoral competition and checks and balances. Under certain conditions politicians find it more effective to provide private patronage rather than public goods. Public scrutiny is generally weaker in countries with high natural resource rents because of lower taxation, and such patronage politics are thus more likely. Using a global panel data set we test these predictions and find that in developing countries the combination of high natural resource rents and open democratic systems has been growth reducing. However, our results also show that checks and balances can offset this adverse effect. We suggest that resource rich economies need a distinctive form of democracy, with more emphasis on checks and balances rather than on electoral competition