On the looting of nations

Abstract

We develop a dynamic discrete choice model of an unchecked ruler making decisions regarding the development of a resource rich country. Resources serve as collateral and facilitate the acquisition of loans. The ruler chooses either to stay in power while facing the risk of being ousted, or loot the country's riches by liquefying the resources through lending. We show that unstructured lending from international credit markets can create incentives to loot the country; and an enhanced likelihood of looting causes greater political instability, and diminishes growth. Using a treatment effects model, we find evidence that supports our predictions. Keywords

The resource curse exorcised: Evidence from a panel of countries

“…Others have explored the link between natural resources and quality of institutions. One form of the institutions-driven resource curse is that resource discovery subsequently weakens institutions and thus growth (Ross 2001, Leite & Weidmann 2002, Sarr et al 2011. Another form treats institutions as exogenous to resource wealth, and the interaction between resources and institutions explains the divergent outcomes of resourcerich countries (Robinson et al 2006, Mehlum et al 2006, Bulte et al 2011.…”

“…One form of the institutions-driven resource curse is that resource discovery subsequently weakens institutions and thus growth (Ross 2001, Leite & Weidmann 2002, Sarr et al 2011. Another form treats institutions as exogenous to resource wealth, and the interaction between resources and institutions explains the divergent outcomes of resourcerich countries (Robinson et al 2006, Mehlum et al 2006, Bulte et al 2011. Other papers have argued that low levels of human capital (Gylfason 2001, Papyrakis 2004, Ortega & Gregorio 2005, lack of investment (Atkinson & Hamilton 2004), corruption (Torvik 2002, Papyrakis 2004, and increased risk of civil war (Collier & Hoeffler 1998) also play a role.…”

Corruption and the Curse: The Dictator's Choice

“…What we are describing here is the essence of the sort of grand corruption described by Rose-Ackerman (1999,2002), and it appears to be a fundamental explanation for the reason that resource-rich countries are subject to the curse (Sarr et. al.…”

“…Reductions in the values for the parameters for debt (d) and security of tenure (ρ) increases the value of staying (shifts the v stay curve upwards). Sarr et al (2011) investigate such effects. 9 It is of course possible that, for particular parameter values, the two curves do not intersect anywhere in (v, k) space.…”

“…Less obvious is our previous point that any form of unstructured liquidity offered to autocrats has the same effect as a pay-off to a dictator (Sarr et al 2011). It is important for any funds supplied to a dictatorial regime to be closely monitored and tied to transparent domestic investments; otherwise, they function in just the same way as a straightforward bribe.…”