Resource rents, balance of power, and political stability

Abstract

We study the association between natural resource rents and internal political stability, highlighting the importance of the distribution of political power as a mediating factor. We present a simple theoretical model demonstrating that increased rents are likely to be positively associated with the internal stability of a powerful incumbent while destabilizing a less powerful incumbent. Our empirical analysis confirms this prediction. Employing panel data for more than 120 countries from the period 1984–2009, our estimation results demonstrate that resource rents can promote political stability but only when political power is sufficiently concentrated. Indeed, if the incumbent is sufficiently weak, rents fuel instability. Our main results hold when we control for the effects of income, quality of institutions (rule of law, democratic accountability and corruption), persistence of political stability, time-varying common shocks, country fixed effects, possible endogeneity of rents and power balance to political stability, and various additional covariates. Our analysis departs from the existing literature by emphasizing not (only) the type of government, but rather the strength of government, as a key determinant of the impact of resource rents on political stability. This analysis sheds light on current political transformations and reconfigurations in the resource rich Middle East and North Africa.

Foreign Infrastructure Investment in Developing Countries: A Dynamic Panel Data Model of Political Risk Impacts

“…These factors include macroeconomic environment, infrastructure stock, market size, and include GDP, GDP growth and population. In fact, GDP, GDP growth, population, macroeconomic environment, and infrastructure quality have all been employed across a considerable spread of research investigating political risk and FDI (Bergara, Henisz, & Spiller, 1998;Henisz, 2000;Delios & Henisz, 2003;Henisz & Mansfield, 2006;Busse & Hefeker, 2007;Bjorvatn & Farzanegan, 2015).…”

How does the flow of remittances affect the trade balance of the Middle East and North Africa?

“…One strategy for reducing the problem of reverse feedback is to use the lag of the right-hand side variables (RHS) in our fixed effects regressions. The past development of remittances and investment and other control variables can affect the trade deficit at the current time but not vice versa (for a similar approach, see Bjorvatn and Farzanegan, 2015;Bjorvatn et al, 2012;Bhattacharyya and Hodler, 2010;and Farzanegan, 2014).…”

Corruption and political stability: Does the youth bulge matter?

“…On one hand, increasing rents can enhance the financial leverage of the state against political opposition. On the other hand, the availability of significant resource rents may increase the benefits of engaging in a movement of rebellion to capture political power (Bjorvatn and Farzanegan, 2015). We control for the total natural resource rents as a share of GDP.…”

“…Some provide support for the "greasing" hypothesis, in which corruption helps moderate the negative effects of dysfunctional regulations and low-quality institutions (Leff, 1964;Huntington, 1968;Dreher and Gassebner, 2013;Méon and Weill, 2010). According to the World Bank (private) firm-level survey database, approximately 20% of firms around the world are expected to give gifts to public 1 In this study, we follow Bjorvatn and Farzanegan (2015) and use "internal conflict" and "political instability" interchangeably. We use the internal conflict index of the International Country Risk Guide (ICRG, 2015) published by the Political Risk Services (PRS) group.…”