Sub-national Resource Curse

The Natural Resource Governance Institute has published an interesting paper examining the evidence for the sub-national resource curse, and finds mixed results. The paper identifies six main mechanisms for the sub-national resource curse – “mismanagement and corruption, conflicts, local price distortions, shifts in employment away from agriculture and manufactures, socio-environmental damages and degradation, and, finally, migration of workers in the extractive sector. These mechanisms relate to the direct impacts of the extractive projects and to the resource revenue spending channel.

Two related papers by Sam Asher & Paul Novosad examine this question for India. Their papers look at the economic impact at city / village scale, as well as how it impacts politics. The abstract of the second paper is instructive:

Do extractable natural resources undermine democratic processes? The immobility of natural resources has made this a difficult question to answer. Using data from India, this paper causally identifies the effect of changes in natural resource wealth on political outcomes. We interact global price changes with locations of mineral deposits within India to isolate exogenous variation in local resource wealth. By exploiting variation within a single country, we remove confounding factors that vary across countries and may be correlated with the importance of natural resources. We find that increased natural resource wealth leads to larger margins of victory in local elections, incumbency advantages increase and elected politicians are more likely to face serious criminal accusations. We test three channels for the criminality effect: (i) greater criminality in office; (ii) adverse selection of politicians into the political system; and (iii) greater success of criminal candidates in elections, finding the strongest evidence for the third effect. We discuss potential interpretations based on changes in voter, candidate and party behavior.

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