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% %)&/&01)2 3&$1#1)"$2 "/4 4%5%$&30%/#"$ %''%)#,

&' 4%3%/4%/)6 &/ '&+%17/ "14 "/4 /"#*+"$ +%,&*+)%,


89

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BC"C D.?EACF2 #=GEGH9 )?IIJKJL*EGMJ=AGH9 ?N #?=?EH?2 OPPQ



A TBESIS S0BNITTEB IN PARTIAL F0LFILLNENT 0F
TBE REQ0IRENENTS F0R TBE BEuREE 0F

NASTER 0F ARTS

in

The Faculty of uiauuate anu Postuoctoial Stuuies

(Political Science)

TBE 0NIvERSITY 0F BRITISB C0L0NBIA
(vancouvei)


Novembei 2u1S



Euwaiu Thomas, 2u1S




ii

"#$%&'(%

This papei pioviues a fiist look at the inteisection between the natuial iesouice anu foieign aiu
cuises. In uoing so, it pioposes that the economic, political, anu uevelopmental effects of foieign aiu
anu natuial iesouices aie influenceu by similai factois. While to uate much of the liteiatuie on the
aiu anu iesouice cuises have tenueu not to engage one anothei, it is shown that thiough a political
economy mouel of political suivival, impoitant commonalities can be uiawn out with iespect to the
cause anu effect of both cuises. Accoiuingly, this papei aigues foi the necessity of no longei
stuuying the two phenomena in isolation, anu insteau piesents a common theoietical mouel
allowing foi a unifieu appioach to unueistanuing the implications of uneaineu income. A
pieliminaiy quantitative analysis is also piesenteu, which suggests at the effects of foieign aiu in
natuial iesouice-uepenuent countiies. Impoitant implications not only foi acauemic ieseaich, but
also impoitantly foi policy making, follow fiom the finuings heiein.




iii
)&*+'(*

The ieseaich containeu heiein in its entiiety was pioposeu, exploieu, anu piesenteu by the authoi,
between Apiil 2u1S anu Novembei 2u1S. Besktop liteiatuie ieview was conuucteu between Apiil
2u1S anu }uly 2u1S using souice mateiial available in piint anu electionically thiough the 0BC
Libiaiy system. Theoietical anu quantitative moueling was unueitaken between }uly 2u1S anu
0ctobei 2u1S. The thesis was piesenteu by the authoi in a public uefence at the Liu Institute foi
ulobal Issues in Novembei 2u1S.

iv

,'#-* .+ /.0%*0%$

Abstiact ......................................................................................................................................................................................... ii
Pieface ........................................................................................................................................................................................... iii
Table of Contents ...................................................................................................................................................................... iv
List of Tables ................................................................................................................................................................................ v
List of Figuies ............................................................................................................................................................................. vi
Acknowleugements ................................................................................................................................................................ vii
Intiouuction ................................................................................................................................................................................. 1
1. Eaily Thinking on the Aiu anu Natuial Resouice Cuises ............................................................................... 2
2. Explaining Between-Countiy vaiiation: a Tuin Towaiu Political Consiueiations ............................ 6
S. A 'Stiiking' 'Bistoiic Coinciuence' - Yet Still Woilus Apait ............................................................................ 8
4. Towaiu a Neta Nouel: Institutions, Incentives, anu the Cuise of '0neaineu Income' ...................... 9
S. Testing the Nouel: the Effects of Simultaneous Resouice anu Aiu Bepenuency ............................... 1S
Conclusion: Policy Implications ........................................................................................................................................ 21
Woiks Citeu ............................................................................................................................................................................... 2S
Appenuix A. Sample Countiies .................................................................................................................................. 26
Appenuix B. Bata Souices ........................................................................................................................................... 28




v
12$% .+ ,'#-*$

Table 1. 0LS iesults, change in mateinal moitality oi uBP giowth - full (1S1 countiy) sample. ....... 17
Table 2. Regiession iesults, categoiical by volume of foieign aiu. .................................................................... 18




vi
12$% .+ 3245&*$

Figuie 1. Natuial iesouice expoits anu economic giowth. Fiom Fiankl, 2u1u. ............................................ S
Figuie 2. Natuial iesouice expoits anu uBP giowth. Fiom Toivik, 2uu9. ...................................................... S
Figuie S. Natuial iesouice expoits anu pei capita economic giowth. Fiom Wainei, 2uu9. ................... 4




vii
"(60.7-*84*9*0%$
Acknowleugements anu thanks aie oweu to Petei Bauveigne, Yves Tibeighien, Beth Biish, anu
Saiah BiPoce foi valuable comments, insights, anu suppoit in the uevelopment of this papei.

1


:0%&.85(%2.0

Both natuial iesouices anu foieign aiu have been seen as potential catalysts of
uevelopment, pioviuing substantial amounts of much neeueu financial iesouices to tackle poveity,
facilitate economic giowth, anu soliuify political iefoims. Yet, in too many instances, ueveloping
countiies have stiuggleu to uo bettei by these iesouices; insteau of enjoying piospeiity anu
giowth, many countiies have spiialleu fuithei into poveity. Zambia's fiist piesiuent, Kenneth
Kaunua, once famously iemaikeu on his countiy's economic unuei-uevelopment that "this is the
cuise of being boin with a coppei spoon in oui mouths" (Boschini, Petteisson, anu Roine 2uu7:2S).
Such iealities have feu a substantial volume of ieseaich on the economic anu political effects of
both foieign aiu anu natuial iesouices. Both aieas of scholaiship have evolveu consiueiably ovei
the last Su yeais, anu now offei iichly uetaileu explanations of how eithei foieign aiu oi natuial
iesouice wealth may in fact be moie of a cuise than a blessing.
Inteiestingly, uespite consiueiable similaiities between the two phenomena, theie has been
little effoit given to examining the possibility that the aiu anu natuial iesouice cuises might best be
explaineu holistically unuei one theoietical paiauigm. Fuitheimoie, uespite the giowing focus
touay on the iole of natuial iesouices in ueveloping countiies, few attempts have been put foiwaiu
to investigate what might happen shoulu iesouice-uepenuent countiies finu themselves the
beneficiaiies of laige flows of foieign aiu. This gap in the scholaiship is maue all the moie uigent
given iecent announcements by uonoi countiies intenuing to allocate substantial !"#
uisbuisements of foieign aiu to assist countiies stiuggling to manage theii natuial iesouices (CBC
2u1S).
In this papei, I will pioviue an initial 'fiist glance' at the effects of a simultaneous
uepenuency on natuial iesouices anu foieign aiu. In so uoing, I seek to auvance two ielateu
aiguments. Fiist, both natuial iesouices anu foieign aiu affect the socioeconomic uevelopment of
countiies in similai ways, anu foi similai ieasons; accoiuingly, it is uesiiable to stuuy both cuises
thiough the same theoietical fiamewoik, which I will begin to uevelop heiein. Seconu, in countiies
alieauy economically uepenuent on natuial iesouices, the effect of foieign aiu is of limiteu auueu
benefit, anu may potentially manifest ueleteiious effects on socioeconomic welfaie. The
examination of these aiguments is stiuctuieu in S paits. In the fiist anu seconu sections, I suivey
the liteiatuie on the aiu anu natuial iesouice cuises, showing how the two have evolveu in paiallel
(but in isolation) to one anothei, ultimately lanuing on many of the same finuings. The thiiu section
consiueis the existing scholaiship that has examineu both cuises simultaneously; while theie aie a
limiteu numbei of existing contiibutions, on the whole a unifieu ieseaich agenua foi both cuises
has faileu to mateiialize. The fouith section is the theoietical contiibution of this papei, piesenting
a political economy mouel that may holu key insights into both the aiu anu natuial iesouice cuises
at once. Complimenting this, the fifth section piesents what is, to my knowleuge, one of the fiist
econometiic analyses of the twin effects of natuial iesouice uepenuency anu substantial foieign aiu
flows on socioeconomic welfaie. Finally, the conclusion emphasizes the uigency of auuitional
contiibutions in line with the theoietical anu empiiical finuings of this papei. This papei, as one of
the fiist of its kinu, is meant to be the launching point foi a new iounu of scholaiship on the aiu anu
iesouice cuises; the iesults aie not intenueu to be the last woiu on the mattei, but, iathei,
illustiative of wheie gaps exist touay anu wheie futuie ieseaich might fiuitfully be uiiecteu.


2
;< ='&-> ,?206204 .0 %?* "28 '08 @'%5&'- A*$.5&(* /5&$*$

Amongst the existing liteiatuie suiveys on the economic effects of foieign aiu oi of natuial
iesouices, neaily all have focuseu exclusively on one oi the othei (Fiankel 2u1u; Bansen anu Taip
2uuu; Toivik 2uu9). I will ievisit some of the lanumaik obseivations, pioviuing a synopsis of the co-
evolution of thinking aiounu the (economic anu, latei, political) effect(s) of foieign aiu anu natuial
iesouices. ueneially, thiee obseivations stanu out: (1) that the liteiatuie on the 'aiu' anu 'natuial
iesouice' cuises have uevelopeu in paiallel, but laigely in isolation, to one anothei; (2) that
scholaiship on both cuises has moveu away fiom puie economic mouels, with gieatei attention on
political consiueiations; anu, (S) uespite commonalities, theie has been little, if any, attempt to
uevelop a theoietical founuation foi unueistanuing the socioeconomic uevelopment effects of
$%&'()*!"+'$ natuial iesouice wealth anu foieign aiu ieceipts.
With iespect to foieign aiu, the scholaiship that initially emeigeu in the 196us showeu a
positive effect of aiu on economic giowth (Bansen anu Taip 2uuu). The majoiity of ieseaich uuiing
this time was baseu on simplistic economic mouels, linking aiu to giowth thiough a savings effect
(Cheneiy anu Stiout 1966). Bowevei, these eaily mouels weie quickly sciutinizeu; Papanek
famously iefeiieu to many pieceuing publications as being "cuiiously nave," owing to theii
ieliance on outmoueu giowth mouels (Papanek 1972). Responuing to this, ieseaich fiom the miu-
197us was infoimeu by moie complex theoiies of economic giowth (Newlyn 197S). That saiu,
iiiespective of the giowing sophistication of economic giowth mouels, scholaiship thiough to the
198us iemaineu confiuent in the positive effect of aiu on giowth.
Natuial iesouices, on the othei hanu, have long been iepiesenteu by a confounuing
naiiative of wealth anu poveity: "iesouice-abunuant countiies constitute some of the iichest anu
some of the pooiest countiies in the woilu" (Toivik 2uu9:242). Fiom the 198us, a numbei of
scholais hau taken note of the significant vaiiation of economic expeiiences between uiffeient
iesouice-enuoweu countiies. While some founu a weakly positive coiielation between iesouice
wealth anu giowth, otheis founu a slightly negative ielationship (cf. Figuies 1-S, below; also,
Fiankel 2u1u; Toivik 2uu9; Wainei 2uu6). Contiaiy to expectations that natuial iesouices woulu
fuel economic uevelopment, no stuuy was able to uefinitively concluue that natuial iesouices weie
univeisally beneficial foi economic giowth. Similai iesults have been noteu foi the inconsistent, if
not slightly negative, effect of natuial iesouices on vaiious measuies of human uevelopment
(Wainei 2uu6:11). Besciibing the confounuing natuie of these iesults, Toivik obseiveu, "the most
inteiesting aspect of iesouice-abunuant countiies is not theii aveiage peifoimance, but theii huge
vaiiation" (2uu9:242).


S

Figuie 1. Natuial iesouice expoits anu economic giowth. Fiom Fiankl, 2u1u.



Figuie 2. Natuial iesouice expoits anu uBP giowth. Fiom Toivik, 2uu9.



4

Figuie S. Natuial iesouice expoits anu pei capita economic giowth. Fiom Wainei, 2uu9.

Fiom the outset, much of the liteiatuie on the natuial iesouices cuise was inteiesteu in
explaining not #,"),"-, but #,. natuial iesouices can leau to economic uecline. Foi natuial
iesouices anu foieign aiu alike, all signs pointeu to the influence of macioeconomic policies. In the
natuial iesouices liteiatuie of the 198us anu 199us, this entaileu a vigoious uiscussion on the
'Butch uisease' (uylfason, Beibeitsson, anu Zoega 1999; Kiugman 1987; Nehlum, Noene, anu
Toivik 2uu6b; Noiiison 2u1u:S4; Sachs anu Wainei 199S, 1999; van Wijnbeigen 1984). Similaily,
in the foieign aiu liteiatuie of the 199us, ieseaich focuseu on the inteiaction between foieign aiu
anu macioeconomic policy (Buinsiue anu Bollai 1997, 2uuu; Buibaiiy, uemmell, anu uieenaway
1998; Baujimichael 199S). The most influential - Buinsiue anu Bollai - maikeu a new nexus
between scholaiship anu policy; an aiticle in the Economist inteipieting the Buinsiue-Bollai
finuings suggesteu, "iich countiies shoulu be much moie iuthless about how they allocate theii
laigesse, whethei eaimaikeu oi not (.) But mainstieam aiu shoulu be uiiecteu only to countiies
with sounu economic management" (Bansen anu Taip 2uuu).
The uistinctive focus on macioeconomic effects within ieseaich on both cuises began to
change by the late 199us, fiist with a numbei of papeis ciitiquing the 'fiagility' of the moueling
piesenteu in Buinsiue anu Bollai (Colliei anu Boefflei 1998; Bollai anu Piitchett 1998; Easteily,
Levine, anu Roouman 2uuS; Bansen anu Taip 2uuu; Stiglitz 2uuS). Similaily, in the natuial
iesouices liteiatuie, the inability to explain why some countiies weie able to oveicome Butch
uisease-like conuitions calleu into question the mouels piesenteu by Sachs anu Wainei anu theii
contempoiaiies (Boschini, Petteisson, anu Roine 2uuS).
Paying gieatei attention to the specificities of ueveloping countiies in which the iesouice
anu aiu cuises weie most peinicious, explanations tuineu to the issue of how ients weie captuieu
anu utilizeu. This uiove a laige bouy of ieseaich on ient seeking behavioi anu pationage politics
(Bhattachaiyya anu Boulei 2u1u; Nehlum et al. 2uu6b; Toinell anu Lane 1999; Toivik 2uu2, 2uu9).
Yet, uespite valuable contiibutions, the liteiatuie on ient seeking behavioui fell shoit in a few
iespects. As with the Butch uisease liteiatuie, ient-seeking mouels positeu a monotone effect,
unable to explain how some countiies manageu this wealth beneficially while otheis uo not.
Equally, these mouels weie not able to account foi !"/*)%0" economic giowthuecline
accompanying iesouice wealth oi aiu; iathei, they geneially accounteu only foi $'1+2)%&*( .")
2+$%)%0" giowth (Toivik 2uu9). All the same, the ient-seeking liteiatuie uiu maik an impoitant ie-
focusing on political vaiiables, incluuing incentives anu elite inteiests. This was likely infoimeu by
auvances in the wiuei uisciplines of inteinational ielations, uevelopment, anu compaiative politics,
which saw gieatei emphasis on new political economy mouels matcheu with moie iobust
econometiic appioaches.

S
In summaiy, thiity yeais of ieseaich suggesteu that both foieign aiu anu iesouice wealth
$,+'(4 have positive impacts on giowth; yet, this has pioven inconsistent in ieality. Noie common
has been a "pattein of tempoiaiy success that too often ueteiioiates to the oiiginal level of
meuiocie peifoimance" (Biautigam 2uuu:6). Nuch of the ieseaich thiough to the late-199us has
been geneializeu as "a long anu inconclusive liteiatuie that was hampeieu by limiteu uata
availability, uebates about the mechanisms thiough which aiu woulu affect giowth, anu
uisagieements ovei econometiic specification" (2uuS:1). Incieasingly attention has tuineu to the
political economy of foieign aiu anu of natuial iesouices (Smith 2uu8:99S). Reflecting this, Bansen
anu Taip aptly concluue that "in sum, the uniesolveu issue in assessing aiu effectiveness is not
whethei aiu woiks, but how anu whethei we can make the uiffeient kinus of aiu instiuments at
hanu woik bettei in vaiying countiy ciicumstances" (Bansen anu Taip 2uuu).



6
B< =CD-'20204 E*%7**0F/.50%&> G'&2'%2.0H ' ,5&0 ,.7'&8 ).-2%2('- /.0$28*&'%2.0$

By the enu of the 199us, the spotlight hau shifteu to the impoitance of 'goou goveinance'
(Keefei anu Knack 2uu2; Nauio 199S; Rouiik, Subiamanian, anu Tiebbi 2uu2).
1
Kofi Annan
iemaikeu uuiing this peiiou that, "goou goveinance is peihaps the single most impoitant factoi in
eiauicating poveity anu piomoting uevelopment" (0NBP 2uu2; also, Knack 2uu1:S11). While the
ielationship between goveinance anu giowth iemains subject of much uebate, it is geneially
unueistoou that goou goveinance is "ciucial foi the sustaineu anu iapiu giowth in pei capita
incomes of pooi countiies" (Knack 2uu1:S11). uoou goveinance is also almost ceitainly a iequisite
of uemociatization anu socioeconomic uevelopment; as Biautigam obseiveu, "the influence of high
quality public institutions may exceeu the impact of goou economic policies in explaining
uevelopment peifoimance" (Biautigam 2uuu:6).
That ievenue fiom aiu oi natuial iesouices might have a ielationship with the quality of
goveinance is almost intuitive. Inueeu, as Biautigam posits, "although we know that noims,
infoimal iules, anu othei institutions uo not change quickly, ten yeais of aiu uepenuence is likely to
ueeply affect the opeiations of a goveinment, anu the incentive stiuctuie" (Biautigam 2uuu:1S). A
political economy peispective piesents goveinance as a non-excluuable public goou, subject to the
accompanying pioblems of collective action (Biutigam anu Knack 2uu4; Biautigam 2uuu). The
most compiehensive explanation of this is by Biautigam:

"Pioviuing these public goous |that is, goveinancej involves solving significant
collective action pioblems: ieuucing coiiuption anu pationage-baseu piocuiement,
teiminating ineffective public sectoi employees, instituting meiitociatic
ieciuitment, shifting scaice social sectoi funuing fiom moie vocal to moie neeuy
iecipients, implementing an effective anu faii tax system, etc." (2uuu:7).

Accoiuingly, a iange of actois - political elites, goveinment buieauciacies, inteiest gioups,
anuoi manageis in aiu agencies (oi natuial iesouices fiims) - all have an inteiest in shifting the
iules of uistiibution. Pioponents of aiu have latcheu on to this, suggesting aiu coulu "facilitate the
suivival of iefoim-minueu goveinments" (Knack 2uu1). Similaily, the possibility of aiu having a
'coiiective' effect on goveinance has been the logic behinu aiguments foi aiu conuitionality to
encouiage iefoim.
Yet pioviuing public goous involves iisk, tiaue-offs, anu saciifice, "in paiticulai fiom those
who stanu to lose the piivate goous pioviueu by the cuiient system" (Biautigam 2uuu:7).
Accoiuingly, it is believeu that aiu uepenuency will cieate "incentives anu infoimal iules," which
ultimately "make it moie uifficult to oveicome the collective action pioblems involveu in builuing a
moie capable anu iesponsive state" (Biautigam 2uuu:8). It is no suipiise that a substantial volume
of ieseaich has pointeu to the peinicious effects of aiu oi natuial iesouices on quality of
goveinance. Foi example, incieaseu levels of natuial iesouices have leu to moie authoiitaiian
political iegimes (Ross 2uu1) as well as gieatei coiiuption anu less goveinment accountability
(Leite anu Weiumann 1999). In the foieign aiu liteiatuie, Knack (2uu1) founu that when aiu iises
by 2S peicentage (as a shaie of uNP), the ICRu inuex (a wiuely useu quality-of-goveinance
measuie) will fall by about S peicent; this ueciease in quality of goveinance is estimateu to leau to
a 1 peicent uiop in economic giowth (Knack 2uu1). Similaily, Biautigam (2uuu) obseiveu that a SS
peicent inciease in aiu (as a shaie of goveinment expenuituie) ieuuces the ICRu inuex by 1 point.
A numbei of papeis have pioviueu excellent suiveys on the vaiiety of mechanisms linking
aiu oi natuial iesouice uepenuencies to economic outcomes thiough political-economy

1
uoou goveinance in this sense is unueistoou as "the foim of institutions that establish a pieuictable, impaitial, anu
consistently enfoiceu set of iules foi investois" (Knack 2uu1:S11).

7
chaiacteiistics (Biautigam 2uuu; Fiankel 2u1u; Toivik 2uu9). Some of the moie wiuely uevelopeu
channels between aiunatuial iesouices, goveinance, anu economic outcomes, incluue: incieaseu
coiiuption anu cionyism (Knack, 2uu1; Aslaksen, 2uu6); moial hazaiu anu ieuuceu piessuie foi
iefoim (Biautigam 2uuu:24; Knack, 2uu1; Aslaksen, 2uu9); uistoiteu laboui maikets anu weakeneu
buieauciatic capacities; anu, (ielateu), a multiplicity of uonoi agencies, each with uiffeient
piioiities anu piocesses, anuoi highly volatile commouity piices, leauing to incoheience anu
instability in national buugets (cf. Knack, 2uu1:S; Biautigam, 2uuu:S8-42). 0n this lattei point,
anecuotes aie not uifficult to finu. Foi example, in the 198us, officials in Nalawi weie managing
neaily 2uu piojects funueu by Su uiffeient uonois; meanwhile, in the 199us, Kenya anu Tanzania
each hau neaily 2uuu uonoi funueu piojects. The buiuen of tiying to manage these uiffeient
piojects anu ielationships with so many uonois has leu to what some obseiveis uesciibeu as
"institutional uestiuction" as "these cooiuination tasks . stiain auministiative capacity"
(Biautigam 2uuu:2S).
The challenge with many of the mechanisms uesciibeu above is the vagueness of causation
in theii unueilying theoiies. With iespect to foieign aiu, Knack cautions that existing "theoiy is
ambiguous with iespect to aiu's impact on the quality of goveinance" (Knack 2uu1). Responuing to
this theoietical anu methouological unceitainty, a numbei of papeis have pointeu to the natuie
moie bioauly of political institutions (iathei than the naiiow focus on quality of goveinance). This
maikeu a majoi shift in the methouological appioach, away fiom cause-anu-effect coiielations
towaiu the %!)"-*5)%+! between key vaiiables.


8
I< " JK%&26204L JM2$%.&2( /.20(28*0(*L F N*% K%2-- O.&-8$ "D'&%

Suipiisingly, uespite consiueiable co-evolution of theoiies, mouels, anu finuings, some
scholais have uesciibeu the piospect of uiiectly compaiing the aiu anu iesouice cuises as "initially
seem|ingj stiange" (Noiiison 2u1u:SS). This is inteiesting, given the almost ceitainty that the two
cuises will co-exist: a numbei of the most natuial iesouice uepenuent countiies happen to also be
some of the pooiest, anu aie iecipients of substantial aiu flows. Confiiming this, one papei notes,
"twenty one countiies in the sub-Sahaian Afiican iegion (ovei half) aie alieauy sizable oil, gas oi
mineial expoiteis. Yet many of the same countiies aie failing to piogiess, oi piogiessing too slowly,
to meet multiple uevelopment goals (incluuing the NBus) anu aie thus potential iecipients of the
incieaseu aiu" (Wainei 2uu6:6S).
The iuea fifty yeais ago that eithei natuial iesouices oi foieign aiu coulu be the 'big push'
catalyst foi giowth anu uevelopment have given way to uecaues of eviuence on the aiu anu
iesouice cuises fiom countiies that have seen the ueleteiious effects of both these 'winufalls' (on
the 'big push', Sachs anu Wainei 1999). Inuiviuually, the same thiee mechanisms - Butch
uiseasemacioeconomic policy, ievenue volatility, anu political ueteiioiation - have been iuentifieu
as being opeiative in both cuises (cf. Noiiison 2u1u:S8-S9). Yet, uespite the similaiities, few
scholais have taken note of the possible oveilap between the twin cuises of natuial iesouices anu
foieign aiu. Noiiison calls attention to this, noting how "the liteiatuie analyzing the effects of aiu
uesciibes veiy similai effects as those in the 'iesouice cuise' liteiatuie, though this bouy of woik
tenus to get much less attention" (2u1u:SS).
A hanuful of scholais have taken fiist tentative steps in the miuule giounu between the two
cuies. Both Biautigam (2uuu) anu Theikilusen (2uu2), foi example, compaie foieign aiu to othei
'non-eaineu' ievenue souices, noting similaiities with an abunuance of natuial iesouices which
leau to ientiei states. Relateu to this, Knack uiaws compaiisons on ient seeking effects fiom foieign
aiu anu fiom natuial iesouices such as coffee anu oil (2uu1:S14). Neanwhile, Noiiison (2u1u)
uiaws attention to the way in which consiueiations such as Butch uisease anu political
ueteiioiation aie implieu in both the aiu anu iesouice cuise liteiatuie. Finally, one of the most
uetaileu compaiisons comes fiom an 0BI0NBP papei, which uiaws heavily fiom the liteiatuie on
the 'aiu cuise' to offei possible piesciiptions foi managing ients fiom natuial iesouice expoits
(Wainei 2uu6:6S-67). Bowevei, the 0BI0NBP obseivations aie laigely hypothetical, lacking any
uetaileu explanation of the logic behinu the piesciiptions anu failing to offei much conclusive
eviuence to suppoit theii assumptions.
0n balance, it is appaient that in iecent yeais, the theoiies, mouels, anu empiiical
obseivations unueilying of each uevelopeu in paiallel. The similaiities between the two bouies of
scholaiship have been uesciibeu as "stiiking" anu as "a new, anu potentially histoiic, coinciuence"
(Noiiison 2u1u:S8; Wainei 2uu6:6S). Theie is a cleai impeiative foi bettei unueistanuing how a
twin uepenuency on foieign aiu anu natuial iesouices might affect a countiy's economic anu
political uevelopment. Yet it is possible that pait of the ieason this question has ieceiveu so little
attention is that a mouel uoes not exist which can comfoitably incoipoiate both the effects of
foieign aiu anu natuial iesouice uepenuence on political anu economic change. 0i uoes it.


9
P< ,.7'&8 ' Q*%' Q.8*-H :0$%2%5%2.0$R :0(*0%2S*$R '08 %?* /5&$* .+ JT0*'&0*8 :0(.9*L

A uecaue ago, Biuno ue Nesquita anu colleagues (2uuS) piesenteu a mouel on the political
economy of the iise anu fall of politicians in office, uiawing emphasis to the piefeiences of political
elites anu the iole of institutions. The Bueno ues Nesquita et al (heieaftei 'BBN') mouel of
selectoiate politics has become one of the most influential political economy mouels auuiessing
elite behavioi, incentives, anu piincipal-agent ielations (Bueno ue Nesquita anu Smith 2uu9a,
2u1u; Bueno ue Nesquita et al. 2uuS; Bunning 2uuS; Smith 2uu8; Wiight 2uu8). The BBN mouel
iepiesenteu an impoitant tuin away fiom a focus on macio-level economic factois, towaiu a
political economy mouel oiienteu at the micio level; in othei woius, a shift fiom a focus on systemic
foices towaiu the iole anu behavioi of actois within the system. The influence of the BBN mouel
quickly spieau, paiticulaily into the aiea of uevelopment stuuies.
I woulu aigue - anu intenu to show - that the BBN mouel is one of the only political
economy paiauigms that offeis piomise foi auuiessing the vaiious ciitiques examineu thus fai.
Though initially piesenteu as a means foi explaining political elite(s)' iesponse to the iisk of being
unseateu, the BBN mouel in fact captuies all the behaviouis familiai to the iesouice anu aiu cuise
liteiatuie (Smith 2uu8). The cential axiom of the BBN mouel speaks to the piefeiences of political
elites: all leaueis aie self-inteiesteu, uesiie political (anu peisonal) suivival, anu ultimately wish to
maximize contiol ovei goveinment ievenue anuoi policy (Bueno ue Nesquita anu Smith
2uu9b:171). Thiee souices of thieats challenge a leauei's tenuie in office: (1) iival elites; (2)
uomestic mass movements; anu, (S) foieign enemies (Bueno ue Nesquita anu Smith 2uu9b:171). It
is the milieu of political institutions anu the natuie of goveinment finance that set the 'iules of the
game,' shapes political anu economic constiaints, anu ueteimines iesouices available to leaueis.
Baseu on these institutional anu iesouice aiiangements, leaueis (attempt to) ciaft the optimal
uistiibution of public anu piivate goous, so as to lengthen theii tenuie in office. The fulcium on
which these inteiactions balance is the natuie of the 'winning coalition'; that is, the numbei of
suppoiteis (eithei othei elites oi membeis of the citizeniy) iequiieu to ensuie suivival in office.
Though skeptics may get caught up in the 'game'-like natuie of the BBN mouel,
funuamentally it is an examination of public policy, agent-piincipal ielationships, institutional
uesign, anu goveinment ievenue. In othei woius, the BBN mouel above all else explains how
"goveinments allocate iesouices anu how iesouices anu political institutions inteiact to influence
policy choices" (Bueno ue Nesquita anu Smith 2uu9b:171). It can be employeu to inteipiet
conuitions acioss a tiemenuous cioss-section of countiies, without becoming snaggeu on uisciete
chaiacteiistics such as the oft-citeu uemociacy vs. autociacy uiviue. It is foi piecisely this ieason
that it has gieat potential foi incoipoiating, togethei, both the aiu anu iesouice cuises.
Fuitheimoie, the influential natuie of the BBN mouel acioss the fielus of compaiative politics anu
uevelopment stuuies means that many paiticulai niche insights into the iesouice anu aiu cuise aie
easily ieconcileu with the funuamental tenets anu axioms of BBN. Accoiuingly, I intenu use the
stiuctuie of the BBN mouel to piesent a unifying theoiy of the aiu anu iesouice cuises. The cential
pillais of this 'meta' theoiy aie: (1) the natuie anu iole of institutions; (2) elite incentives anu
piefeiences; anu, (S) the impact of uiffeient foims of goveinment income.

D<F 1EAHGHRHG?EA
Builuing fiom initial insights in the 'goou goveinance' liteiatuie, institutional context is
unueistoou to effect political anu economic outcomes thiough an inteiaction with the uepenuency
on foieign aiu oi natuial iesouices. 0n this, Ahmeu obseives, "uomestic political institutions (anu
the incentives they geneiate foi goveinments) &"4%*)" )," %&2*5) of aiu anu iemittance inflows on
the quality of goveinance anu the enuuiance of goveinments in autociacies" (emphasis auueu,
Ahmeu 2u12:164). Similaily, with iespect to natuial iesouices, "the oveiall impact of iesouice
booms on the economy uepenus ciitically on institutions since these can ueteimine the extent to

1u
which political incentives map into policy outcomes" (Robinson, Toivik, anu veiuiei 2uu6).
Robinson et al piesent one of the fiist foimal political economy mouels on the ielationship between
institutions anu natuial iesouices, finuing that, "low quality institutions invite bau policy choices
since they allow politicians to engage in inefficient ieuistiibution in oiuei to influence the outcomes
of elections. Bigh quality institutions make such political stiategies infeasible oi ielatively
unattiactive" (Robinson et al. 2uu6).
In a similai appioach, Nehlum et al (2uu6) show that foimal anu infoimal institutions (such
as piopeity iights anu coiiuption) cieate uiffeient incentives that shape the actions of piivate
agents. With 'giabbei fiienuly' institutions, "natuial iesouices may stimulate pieuation, ient-
seeking, anu othei uestiuctive anuoi non-piouuctive activities, in tuin cieating negative
exteinalities foi the iest of the economy" (in Toviik, 2uu9). In one econometiic stuuy, Toivik founu
the top 2u peicent of countiies, in teims of quality of institutions, hau "no iesouice cuise" anu
insteau a iesouice uepenuency hau positive effects on economic giowth (Toivik 2uu9). 0n the
othei hanu, in countiies with the woist possible quality of institutions, "iesouice abunuance is veiy
uamaging to giowth" (Toivik 2uu9; similai to Nehlum et al 2uu2; Robinson et al 2uu2; Boschini et
al 2uuS).
0ne of the most substantial aieas of uebate with iespect to institutions ueals with whethei
they aie enuogenous (%!6('"!5"4 1. the aiuiesouices cuise) oi exogenous ("7 *!)" to the cuise,
themselves 5+!4%)%+!%!/ the effects of foieign aiu oi natuial iesouices). In line with eaily thinking
on the impact of quality of goveinance, a numbei of influential papeis subsciibeu to the lattei
peispective, establishing a ielationship between initial institutional context anu the subsequent
effects of the aiuiesouice cuise: institutions "&"4%*)" the impact of uneaineu foieign income"
(emphasis auueu, Ahmeu 2u12; also, Boschini et al. 2uuS; Biunnschweilei 2uu8). This
inteipietation tenus towaiu uefining institutions accoiuing to uisciete vaiiables, such as: piopeity
iights anu coiiuption (Biunnschweilei 2uu8; Nehlum, Noene, anu Toivik 2uu6a; Nehlum et al.
2uu6b), factois ielateu to investment, openness, anu coiiuption (Papyiakis anu ueilagh 2uu4), oi
categoiical measuies such as 'iule-baseu,' 'outcome-ielateu,' 'piopeity iights,' anu 'contiacting'
institutions (Boschini, Petteisson, anu Roine 2u11).
Two pioblems emeige fiom the exogenous appioach to institutions. Fiist, it goes against the
intuitive unueistanuing that uiamatic changes in the economic conuitions of a countiy - e.g. fiom
inciease natuial iesouice oi foieign aiu ients - shoulu likely have $+&" soit of effect on the political
institutions of that countiy. Seconu, while attempts at paisimony aie useful foi econometiic tests,
theie is cleai uisagieement amongst scholais as to #,%5, institutions mattei, anu how to best
uefine anuoi measuie them. Accoiuingly, the exogenous appioach to institutions is, though
valuable, only half the tiuth. 0n the ieveise, this is not to suggest that the eaily inteipietations of
exogeneity weie fully accuiate eithei: many of the finuings in eaily seminal papeis positing that
initial natuial iesouice levels woulu ueteimine institutional outcomes have been iepeateuly
iefuteu (Boschini et al. 2uu7:16).
A new anu moie iobust 'thiiu way' has emeigeu, with gieatei consiueiation to the
%!)"-*5)%0" -"(*)%+!$,%2 between institutions, iesouiceaiu ients, anu economicpolitical outcomes.
While extant political institutions often pieuate the onset of natuial iesouices oi foieign aiu
uepenuency, the influx of substantial new ievenue stieams will have such a uistoitionaiy effect on
the economy as to necessaiily have some implication on institutions. Foi example, when public
income is ueiiveu fiom natuial iesouices, political elites will have an incentive to block
institutional uevelopment in oiuei to maximize theii contiol ovei uistiibution of these ients
(Acemoglu anu Robinson 2uu6). Such a mouel of institutions is piesenteu in uetail in Anueisen
(2u12).
Foi the aiu cuise, veiy similai moueling is shown in Knack (2uu1). With incentives anu elite
behavioui subject to examination in moie uetail below, the key point heie is that institutions aie
not static; they both influence anu aie influenceu by othei stiuctuial factois in the political

11
economy (Acemoglu anu Robinson 2uu6; Anueisen 2u12; Knack 2uu1). This is complimentaiy to
the BBN mouel: "in auuition to ueteimining the mix of goous leaueis use, institutions ueteimine
how much policy leaueis piouuce anu how easy it is foi them to suivive" (Bueno ue Nesquita anu
Smith 2u1u:9S7).
A key uistinction in the BBN mouel is that political institutions iefei bioauly to all the
factois that come togethei to ueteimine the necessaiy size of the winning coalition anu the
composition of the oveiall selectoiate (cf. Bueno ue Nesquita anu Smith 2u1u:9S7).

This contiasts
othei conceptualizations of 'institutions' that focus on uisciete categoiizations, such as 'coiiuption'
oi 'iule of law.' In the BBN mouel, a small coalition system geneiates institutions that favoui a focus
on the uistiibution of piivate goous, to be useu "as uiscietionaiy iesouices by the leauei oi uoleu
out as piivate benefits foi the leauei's suppoiteis" (Smith 2uu8:781). The opposite holus foi laige
coalition systems, which engenuei institutions that encouiage the piovision of public goous.
A key auvantage of the BBN conceptualization of institutions is that it "allows compaiison
acioss all iegimes, iathei than between categoiizations" (Bueno ue Nesquita anu Smith 2u1u:9S7).
The BBN mouel unueistanus institutions as a spectium along which uiffeient sizes of selectoiate
anu winning coalition can be placeu. This is commensuiate with a numbei of influential papeis that,
taking a 'systems' appioach to institutions, have obseiveu uiffeiences in how public goous aie
uistiibuteu: uemociacies (as opposeu to autociacies) anu pailiamentaiy systems (as opposeu to
piesiuential systems) aie likely to spenu moie on the piovision of bioauly taigeteu public goous
(Acemoglu anu Robinson 2uu6; Ahmeu 2u12; Peisson, Rolanu, anu Tabellini 2uuu). The bioauei
point heie speaks to the impoitance of focusing not on inuiviuual featuies - like piopeity iights,
iisk of expiopiiation, oi iule of law - oi on uichotomous categoiizations (e.g., 'uemociacy-oi-
autociacy') but insteau on the bioauei political institutional enviionment, as in the BBN mouel. The
BBN mouel is amongst the fiist to uiaw these vaiious obseivations on institutions into a "unifieu
theoietical appioach" (Bueno ue Nesquita anu Smith 2uu9b:17u).

D8F 1ESJEHGMJA
Impoitantly, the piefeiences of political elites inteiact with the above-uesciibeu political
institutions to shape an incentive stiuctuie that has conuitioning effects on elite behavioui. A new
wave of political science liteiatuie has iecognizeu that "political leaueis aie not the guaiuians of
the state; they aie self-inteiesteu actois who implement policies to secuie theii suivival in office,
not to piomote societal welfaie" (Smith 2uu8:792). Equally, iecall the cential axiom of the BBN
mouel, that "political leaueis aie motivateu fiist to gain anu ietain political powei anu, conuitional
on meeting that goal, to maximize theii uiscietionaiy contiol ovei goveinment ievenue" (Bueno ue
Nesquita anu Smith 2uu9b:171).
The intiouuction of ient-seeking mouels into scholaiship on the aiu anu iesouice cuises
caiiieu an implicit belief that political leaueis hau veiy shoit time hoiizons, anu that they steeply
uiscounteu the futuie. 0lson's (199S) 'ioving banuit' uesciibes a leauei who seeks to maximize
consumption of all available iesouices in the piesent peiiou, with ueleteiious macioeconomic
effects in the next peiiou.

While theie is no shoitage of examples of leaueis making off with theii
countiies' wealth, this in fact iaiely happens oveinight. Rathei, in the neai teim, many
authoiitaiian leaueis actually supplieu consiueiable amounts of goous anu seivices to theii people
(Wiight 2uu8). Shoit time hoiizons aie not univeisal, even foi uictatois. Accoiuingly, the iange of
potential time hoiizons uiamatically affects a leauei's incentives (Yuichi Kono anu Nontinola
2uu9).
The BBN mouel explains such time hoiizons in teims of incentive stiuctuies foi elites, as
shapeu by political institutions (foimal anu infoimal). Both the liteiatuie on leauei time hoiizons
anu the BBN mouel acknowleuge that "incumbent political leaueis want to ieuuce the size of theii
coalition they want to puige membeisif they can" (Biautigam 2uuu; Bueno ue Nesquita anu
Smith 2uu9b:18S; Wiight 2uu8). Bowevei, "those outsiue the winning coalition piefei incieases in

12
the inclusiveness of political institutions because of the public goous focus it inuuces" (Smith
2uu8:792).
Accoiuingly, incentive stiuctuies altei the uistiibution of public goous to be pioviueu. As
uesciibeu eailiei, the piovision of such public goous often leaus to collective action anu fiee iiuei
pioblems, moial hazaiu, anu a tiageuy of the commons (cf. Biutigam anu Knack 2uu4). Wheieas
long time hoiizons encouiage investment in public goous, shoit time hoiizons (inuicative of
challengeis to the iegime) encouiage the uiveision of public funus to thiee piivate uses: iepiession,
pay offs, anu peisonal aggianuizement (Wiight 2uu8). Put uiffeiently, "unstable autociats who face
shoit time hoiizons have an incentive to use aiu money to pay foi iepiession oi buy off potential
thieats to the iegime in a time of ciisis (.) The shoit time hoiizon these autociats face foices them
to iaiu any available ievenue, incluuing foieign aiu, in an effoit to iepiess oi pay off challengeis to
the iegime" (Wiight 2uu8:97S). Even foi uictatois, two aiu (oi iesouice) cuise scenaiios aie
equally possible, accoiuing to incentive stiuctuies: "Autociats who face shoit time hoiizons woulu
likely use foieign assistance foi peisonal consumption, wheieas those who face long time hoiizons
shoulu invest aiu in public goous that giow the economy so the autociatic iegime can take fiom a
laigei pie in the futuie" (Wiight 2uu8:974). Piecisely the same point is maue in the BBN mouel; in
teims of public policy, "leaueis choose between a public goous oi a piivate iewaius policy focus
uepenuing upon how many suppoiteis they neeu to suivive in office (the winning coalition size)"
(in Smith, 2uu8:78u; foi uetaileu uiscussion on public anu piivate goous, cf. Bueno ue Nesquita anu
Smith 2uu9b:172).
In summaiy, the incentive stiuctuies anu piefeiences of leaueis aie ueteimineu by the (a)
uesiie to iemain in office, (b) the time hoiizon of the leauei (not always shoit, even foi uictatois),
anu (c) the necessaiy mixtuie of public anu piivate goous to be pioviueu (conuitions set by the
natuie of political institutions, e.g. the stiuctuie of the selectoiate anu winning coalition).

DSF #>J SR=AJ ?N TREJ<=EJ: GES?@JU
The analysis thus fai has focuseu on the way in which the BBN mouel of political suivival
pioviues a unifieu theoiy of institutions, incentives, anu elite piefeiences. Yet, what is it piecisely
about foieign aiu oi natuial iesouices that cause such peinicious economic outcomes. Why uo
countiies which *(-"*4. hau such pooi institutional quality anu weak economic peifoimance finu
themselves so much woise off aftei the uiscoveiy of significant oil oi mineial ueposits, oi following
a laige influx of foieign aiu. To answei this, we must look in laige pait to the natuie of goveinment
ievenue, with impoitant insights fiom the BBN mouel conveiging with obseivations elsewheie in
the liteiatuie (e.g. Noiiison 2u1u).
Simply put, goveinments obtain ievenues eithei thiough "taxation on piouuctive economic
activities |oi thioughj iesouices 4"-%0"4 %!4"2"!4"!) +6 )," 5%)%8"!$9 willingness to engage in the
economy" (emphasis auueu, Smith 2uu8:781). The lattei aie often uesciibeu as uneaineu income
(oi, elsewheie labeleu nontax ievenue, soveieign ients, oi 'fiee' oi 'slack' iesouices), which aie
uefineu as "income geneiateu fiom outsiue a countiy's boiuei that can change (eithei uiiectly oi
inuiiectly) a goveinment's ievenue base" (Ahmeu 2u12:16S). Similaily, Bueno ue Nesquita anu
Smith uesciibe uneaineu goveinment income as absolving "the goveinment |of the neeuj to
pioviue conuitions, such as high levels of public goous, that aie conuucive to economic activity by
iesiuents in oiuei to geneiate ievenue" (2uu9:172). Though slight uiffeiences apply, aiu anu
natuial iesouices aie the most substantial foims of such uneaineu income; both "aie paiu by
foieign actois; (.) aie often substantial anu acciue uiiectly to the state; anu only few people in the
iecipient goveinment aie involveu in geneiating them, while many aie involveu in using anu
uistiibuting them" (Theikilusen 2uu1:2; Beblawi 1987 in Noiiison 2u1u).
0neaineu income often inuuces uiscietionaiy spenuing piactices by goveinments, with less
coiollaiy iequiiement foi public accountability. It is known with ientiei states that oil (anu foieign
aiu) have haimful effects on goveinment accountability thiough the goveinment's ieuuceu ieliance

1S
on taxation (Ahmeu 2u12; Noiiison 2u1u; Ross 2uu4a, 2uu4b; Theikilusen 2uu2).

As Biautigam
notes, "when the flow of ievenue uoes not uepenu on the taxes iaiseu fiom citizens anu businesses,
theie is less incentive to be accountable to them" (Biautigam 2uuu:2S). Equally, the BBN mouel
auuiesses the effects of goveinment ievenue on public accountability, noting, "leaueis who iely on
taxing piouuctive economic activity to geneiate the iesouices neeueu to iewaiu theii coalition finu
suppiessing public goous to be unattiactive. Bowevei, leaueis with access to abunuant, essentially
laboi-fiee iesouices . such as natuial iesouice ients oi foieign aiu can suppiess |publicj goous
with little if any uamage to theii ievenue" (Bueno ue Nesquita anu Smith 2u1u:9S7). The
implication, then, is the impoitance not (only) of a countiy's total wealth, but the souice of that
wealth: "if leaueis neeu to tax piouuctive economic activities to geneiate ievenues, then the
piospects foi uemociatization aie much stiongei than if leaueis gathei iesouices without having to
geneiate policies that encouiage people to woik" (Bueno ue Nesquita anu Smith 2u1u:949).
Relateu to the lack of accountability suiiounuing uneaineu incomes is the fungibility (oi,
elsewheie labeleu as 'appiopiiability' oi 'lootability') of ients fiom natuial iesouices anuoi
foieign aiu. Fungibility anu the concomitant lack of accountability peimits actois to "engage in
ceitain behavioi that woulu not be possible in the absence of these funus" (Ahmeu 2u12:149). This
is paiticulaily obseiveu in the foieign aiu liteiatuie; given the consiueiable sums of money at stake
- between 196u anu 199u, foieign aiu contiibutions toppeu ioughly 0S$1.7 tiillion - anu the
ielatively lacklustei iesults, theie is concein that "uevelopment assistance eaimaikeu foi ciitical
social anu economic sectois is being useu uiiectly oi inuiiectly to funu unpiouuctive expenuituies"
(Bevaiajan anu Swaioop 1998:2). Case stuuies have shown that "that exteinal assistance intenueu
foi uevelopment puiposes meiely substitutes foi spenuing that goveinments (.) woulu have
unueitaken anyway; the funus fieeu by aiu aie spent on non-uevelopment activities anu
auministiative seivices in paiticulai" (Bevaiajan anu Swaioop 2uuu:1u). This is an aiea of ieseaich
gaining tiaction in the natuial iesouices liteiatuie as well (Boschini et al. 2uu7). ueneially speaking
(anu in line with the BBN mouel), institutions aie moie uecisive when the goveinment's ievenue
stieam is moie fungible (anu less accountable) (Boschini et al. 2uu7:4; Bueno ue Nesquita anu
Smith 2u1u:9S9).
That uneaineu income may have 'amplifying' effects on institutions is ieflecteu in a giowing
numbei of papeis on the topic of foieign aiu anu natuial iesouices, many of which iesonate closely
with the BBN mouel (e.g. Bunning 2uu8 in Noiiison 2u1u; Noiiison 2uu9; Wiight 2uu8). Butta et
al (2u1S) piesent a giounubieaking papei, in which they aigue that foieign aiu "neithei causes
uemociacies to become moie uictatoiial noi causes uictatoiships to become moie uemociatic. :)
+!(. *&2(%6%"$ -"5%2%"!)$9 "7%$)%!/ 2+(%)%5*(;%!$)%)')%+!*( +-%"!)*)%+!$" (emphasis auueu, Butta et al
2u1S). The BBN mouel accepts the pioposition of such an amplification effect, noting that wheie
mass public mobilization is likely (eithei thiough elections oi ievolution), auuitional volumes of
fiee iesouices in laige coalition systems encouiage leaueis to expanu the supply of public goous.
The opposite (a contiaction of public goous) holus in small coalition (e.g. moie autociatic)
institutional contexts (cf. Smith 2uu8).
Suppoiting the amplification effect of uneaineu income on institutions, iecent stuuies have
founu uneaineu income to be associateu with lowei likelihoou of iegime tiansition (Noiiison
2uu9), an inciease in coiiuption wheie extant institutional quality is weak (Bhattachaiyya anu
Boulei 2u1u), anu a negative effect on giowth wheie institutional capacity is low (Boschini et al
2uu7 in Noiiison 2u1u). Anueisen shows how elites stiategically "invest in ue facto political powei
in oiuei to gain favoiable economic institutions" (Anueisen 2u12).

Noieovei, this "investment in ue
facto political powei also inuiiectly incieases the piobability of non-uemociatic ue juie political
institutions in the next peiiou," anu, theiefoie, to the "2"-$%$)"!5" +6 2+(%)%5*( %!$)%)')%+!$" (emphasis
auueu, Anueisen 2u12).

Besciibeu eailiei, Wiight shows that fiee iesouices (uneaineu income)
tenu to be tuineu into public goous wheie leaueis have long time hoiizons (moie stable iegimes),

14
but equally tenu to be uiveiteu towaiu malfeasance when time hoiizons aie shoit (iegimes aie less
stable) (Wiight 2uu8; Yuichi Kono anu Nontinola 2uu9).

D:F ,R@@<=9- 1EAGK>HA N=?@ < @JH< H>J?=9
Although scholaiship to uate has paiu little attention to the similaiities between the natuial
iesouice anu foieign aiu cuises, it is ieasonable to suggest that the BBN mouel of political suivival
iepiesents a unifying 'meta' theoiy capable of biinging togethei many influential contiibutions on
each of the cuises. The cential tenets of the BBN mouel aie incieasingly ieflecteu in the logic
stiuctuies of most of the iecent liteiatuie on the aiu anu natuial iesouice cuises (Ahmeu 2u12;
Smith 2uu8; Toivik 2uu9). In shoit, while the puisuit of political suivival is logical at the micio
level, it often iesults in peinicious effects foi macioeconomics anu public welfaie, owing to the
uistiibution of public anu piivate goous it inuuces.
The BBN mouel explains how stiategies of elite iegime suivival have uiiect implications
foi macioeconomic peifoimance, political libeialization, anu potential socioeconomic welfaie gains.
The political institutions of a countiy influence anu ueteimine the policies iequiieu by a leauei to
suivive in office, anu equally foi the stiategies of opponents to challenge the incumbency; the
mouel shows that "incumbents aie most likely to suivive when they aie beholuen to only * $&*((
5+*(%)%+! of suppoiteis anu when they have *55"$$ )+ -"$+'-5"$ < $'5, *$ +%( *!4 *%4 - that uo not
iequiie significant economic paiticipation by the citizens" (emphasis auueu, Bueno ue Nesquita
anu Smith 2u1u:9S6). As with many othei influential papeis on the aiu anu iesouice cuise, the BBN
mouel posits the natuie of goveinment ievenue to be cential to unueistanuing the public policy
choices maue by political elites. 0nuei ceitain institutional contexts (specifically, laige winning
coalitions settings, e.g. moie pluialistic systems), political elites aie likely to tiansfoim "the
iesouice bonanza associateu with the uiscoveiy of a ieauily exploitable !*)'-*( -"$+'-5" oi an
influx of 6+-"%/! *%4 into economic uevelopment anu impiovements in societal welfaie" (Smith
2uu8:781). Bowevei, in othei institutional settings, elites aie likely to uiveit substantial paits of the
ients fiom natuial iesouices anuoi foieign aiu towaiu peisonal anu cohoit suivival, with
"insiuious effects on political anu economic uevelopment" (Bueno ue Nesquita anu Smith
2u1u:949).
,
Accoiuingly, it is "institutions anu the level of fiee iesouices |thatj ueteimine which
policy best enhances the leauei's piospects foi suivival" (Smith 2uu8:782); equally, I woulu suggest
that togethei these vaiiables ueteimine the manifestation of the iesouice anuoi aiu cuises.
The uistoitionaiy effect of uneaineu goveinment income on the allocation of public anu
piivate goous leaus to suboptimal macioeconomic effects (e.g. Boschini, Petteisson, anu Roine
2uuS). An inciease of uneaineu income ievenues woith 1u% of uBP will, in the institutional
context of a small winning coalition, ieuuce the chance of a leauei being ueposeu by 2u-Su%
(Bueno ue Nesquita anu Smith 2u1u; see also, Biautigam 2uuu; Smith 2uu8; Ahmeu 2u12; Besley
anu Peisson 2uu9). In Ahmeu (2u12), uneaineu income is expanueu to incluue iemittance flows;
the finuings holu, with similai effects on iegime suivival. In paiticulai, Ahmeu notes that "the
combination of aiu anu iemittance inflows ieceiveu in moie autociatic polities ieuuces the
likelihoou that goveinments will be ousteu fiom powei, expeiience inciuents of majoi political
uiscontent, anu unueigo iegime collapse" (Ahmeu 2u12:148).
Finally, obseivations fiom the BBN mouel aie laigely in line with the institutional
'amplification' anu 'peisistence' effects piesenteu in Anueisen (2u12) anu Butta et al (2u1S). The
negative inteiaction between institutions anu natuie of goveinment ievenue appeais gieatei in the
context of small winning coalitions anu 'fiee' iesouices; in othei woius, the moie uemociatic a
countiy, the less negative effect aiu oi natuial iesouices appeai to have. Fuithei keeping with the
amplification effect, it is noteu that uneaineu income in a countiy with a laige winning coalition
size may "acceleiate the expansion of coalition size" oi, in othei woius, suppoit political
libeialization (Bueno ue Nesquita anu Smith 2u1u:946).


1S
U< ,*$%204 %?* Q.8*-H %?* =++*(%$ .+ K295-%'0*.5$ A*$.5&(* '08 "28 V*D*08*0(>

Baving uiscusseu the theoietical founuations foi a mouel that can encompass the twin
cuises of natuial iesouice anu foieign aiu uepenuencies, I next tuin to exploiing the implications of
the aiu anu iesouice cuise co-existing simultaneously. The puipose is moie to be illustiative than
uefinitive; it is outsiue the scope of this papei to pioviue a fai-ieaching quantitative analysis, anu,
insteau, what aie piesenteu aie pieliminaiy inteipietations. I focus on one possible ielationship
involving foieign aiu anu natuial iesouices that has ieceiveu suipiisingly little attention: the
socioeconomic welfaie effects in a countiy that has an economy laigely uepenuent on the natuial
iesouices sectoi anu which is also the iecipient of significant foieign aiu.
While the BBN mouel gives some sense that both cuises opeiate accoiuing to a familiai
logic, it iemains unueteimineu what the foimal moueling of this ielationship might look like.
Recent woilu events may have offeieu an answei: gieatei attention in the last uecaue on the
potential bonanza of natuial iesouices foi many ueveloping countiies has simultaneously pioviueu
gieat optimism as well as a ieneweu concein about the iesouices cuise. Following this, many
uevelopeu countiies have pleugeu a new iounu of aiu to theii Southein peeis to manage the
uepenuency on natuial iesouices. Accoiuingly, it seems appiopiiate to piopose an econometiic
mouel that examines the laggeu effects of incieaseu foieign aiu flows to alieauy-iesouice-
uepenuent countiies. 0thei ielationships aie possible: foi example, the uiscoveiy of substantial
natuial iesouices in an alieauy heavily aiu-uepenuent countiy. In keeping with the scope of this
papei, howevei, I focus only on the fiist mouel, leaving alteinate mouel specifications foi otheis to
analyze. With this in minu, the following ieseaich question anu hypotheses aie pioposeu:

Q : (><H <=J H>J JNNJSHA ?N < S?REH=9UA :JVJE:JES9 ?E E<HR=<I =JA?R=SJA <E:
N?=JGKE <G: ?E A?SG?JS?E?@GS ;JIN<=JW

B1 : 1E S?REH=GJA <I=J<:9 I<=KJI9 :JVJE:JEH ?E E<HR=<I =JA?R=SJA2 H>J=J GA < (&2%2('-
%?&*$?.-82 GEAG:J ;>GS> N?=JGKE <G: V?AGHGMJI9 <NNJSHA A?SG?JS?E?@GS :JMJI?V@JEHC

Bu : 1E S?REH=GJA <I=J<:9 I<=KJI9 :JVJE:JEH ?E E<HR=<I =JA?R=SJA2 N?=JGKE <G: ><A
0. *++*(% ?E A?SG?JS?E?@GS :JMJI?V@JEHC


D<F 4<H< <E: 0J<AR=J@JEH
="2"!4"!) 0*-%*1(". To measuie the countiy-level socioeconomic welfaie effect of aiu anu
iesouice uepenuency, I take as the uepenuent vaiiable the change in mateinal moitality between
2uuS anu 2u1u (vaiiable: &+-)*(%).). Pieviously, I hau anticipateu using change in Buman
Bevelopment Inuex scoie; howevei it quickly became appaient that the use of an aggiegate inuex
was potentially leauing to ovei specification in the mouel, causing positive oi negative changes to
be misseu. Foi the puiposes of an initial investigation, I believe mateinal moitality iates to be a
moie effective measuie of the most basic elements of socioeconomic welfaie (fuitheimoie, this
appioach has been useu thioughout the inteinational uevelopment liteiatuie). Results aie iepoiteu
in the positive; a + sign inuicates a uecline (impiovement) in mateinal moitality. I incluue only
those countiies with a population ovei 1 million in 2u1u, iesulting in a sample size of 1S1 countiies
(Annex A).

:!4"2"!4"!) 0*-%*1("$> The inuepenuent vaiiables ielate to uepenuency on natuial
iesouices (!*)-"$), uepenuency on foieign aiu (*%4), anu the opeiational mechanism thiough which
the cuise(s) aie manifest: institutions (*//?%!$)%)).

16
(1) Foieign aiu. To measuie foieign aiu (*%4), I use a measuie of official uevelopment
assistance uisbuisements (iepoiteu in hunuieus of millions of $ 0S). Fuitheimoie, I use an
aveiageu figuie, ovei the peiiou 2uu7-2u1u, to account foi any potential volatility in aiu flows
between yeais. In mouel 2 (uiscusseu below), I use thiee categoiies of aiu volume: low
(<0S$Sump.a.; '*%4(+#'), meuium ($Sum-48ump.a., '*%4&"4'), anu high (> $48ump.a., '*%4,%/,').
(2) Natuial iesouices. To account foi 'natuial iesouice uepenuency' (!*)-"$) I use a
measuie of the value of mineial anu fuel expoits as a shaie of total expoits. The logic behinu this is
biiefly as follows. The econometiic liteiatuie on natuial iesouice wealth has confuseu a numbei of
conceptualizations with subtle yet impoitant uiffeiences. Fiist, only ceitain types of iesouices
exhibit peinicious effects. This is laigely ielateu to the fungibility oi appiopiiability of the iesouice;
foi example, 5")"-%$ 2*-%1'$, agiicultuial piouucts aie less appiopiiable than mineials oi oil
(Boschini et al. 2uuS). In keeping with this, I theiefoie focus on 'point-souice', sub-suiface
iesouices: mineials anu oilgas (Boschini et al. 2uu7; Isham et al. 2uuS; Nehlum et al. 2uu6b; Rajan
anu Subiamanian 2uuS; Toivik 2uu9). Fuitheimoie, it is with iesouice 4"2"!4"!5. (as opposeu to
'*1'!4*!5"9) that one obseives the effects of the iesouice cuise (Biunnschweilei 2uu8). Relateu to
this, few papeis measuiing levels of natuial iesouices acknowleuge the uiffeience in meaning
behinu 'piouuction' anu 'expoits' (Boschini et al |2uuSj aie an exception). Bence, I focus on
'uepenuency' as measuieu thiough eainings fiom natuial iesouices as a shaie of oveiall expoits.
Finally, to account foi volatility in commouity piices anu gaps in uata, I aveiage these figuies ovei
the peiiou 2uuu-2uu8.
(S) Institutions. Finally, iecall that both cuises aie laigely seen as the inteiaction between
uepenuency on uneaineu income anu the institutional context. In measuiing 'institutions', I uepait
fiom many eailiei methouologies, which often focuseu on uisciete vaiiables such as coiiuption oi
iule of law (e.g. Boschini et al 2uuS). In laige pait, these eailiei appioaches have been iefuteu (cf.
Wiight 2uu8:979). Insteau, iecall that in the BBN mouel, the salient political institutions aie the
size of the winning coalition anu of the selectoiate; this encapsulates a mix of iegime type anu
inheient systemic stability. To pioxy foi this, I use the P0LITY inuex to uesciibe institutional
vaiiables (similai to Bueno ue Nesquita et al in theii 2uuS mouel). As well, I incluue the '0nueilying
vulneiability' inuex, which is mouelleu off the Political Instability Task Foice uataset with the
auuition of a numbei of social, economic, anu political inuicatois foi iegime vulneiability.
2
I piesent
two aggiegate inuices (*//?%!$)%)@A anu *//?%!$)%)B@), which ieflects the aggiegate of the P0LITY
anu 0nueilying vulneiability measuies, aveiageu ovei the peiious 2uuu-2uu8 anu 2uu7-2u1u. I
believe this appioach towaiu institutions to be an acceptable ieflection of both the natuie anu
stability of institutions in each countiy, geneially in line with the BBN mouel's intenueu
unueistanuing of institutions. uiven that all leaueis uesiie suivival, this gives a sense of ue juie anu
ue facto institutional constiaints, which might influence natuial iesouice anu foieign aiu ievenues.
The logic behinu the uiffeient uate ianges is intenueu to mouel the inteiactive natuie of institutions
vis--vis the aiuiesouice cuises. The fiist peiiou of uates coiiesponu to the inteiactive effect of
institutions with natuial iesouices; the seconu peiiou of uates coiiesponu to the inteiactive effect
of institutions with foieign aiu flows.

C+!)-+($> In keeping with convention, I incluue a hanuful of contiols to account foi the
extianeous influence of othei factois. In the fiist mouel (mouels |1a-u), I incluue as contiols: uBP
(/42); human capital, measuieu as % of auult population that is liteiate ((%)"-*5.); anu, countiy
population (2+2'(*)%+!). In the seconu mouel (mouels |2a-cj), I incluue only /42 anu 2+2'(*)%+!; I
uiop (%)"-*5. as a contiol in the seconu mouel as I founu it to be statistically less helpful anu less

2
Aftei ieveising the uiiection of scoies in the 0nueilying vulneiability inuex anu ie-scaling them fiom the oiiginal u to
+1u to a new -S to +S scale, I then auu togethei the new 0nueilying vulneiability scoies anu P0LITY scoies to cieate an
aggiegate inuex to pioxy foi institutional context.

17
logical to the mouel. 0nlike some stuuies on the cuises, I uo not use instiumental vaiiables to
auuiess foi possible enuogeneity. This is in keeping with ciitique iuentifieu in Wiight (2uu8),
Toivik (2uu9), anu elsewheie.

D8F 0?:JI ,VJSGNGS<HG?E2 +JARIHA <E: 1EHJ=V=JH<HG?E

:!%)%*( D1$"-0*)%+!$> Foi natuial iesouices, half the countiies in my 1S1-countiy sample
ueiiveu less than one-quaitei of theii expoit eainings fiom natuial iesouices. Bowevei, neaily 4u
countiies - which iange in political, economic, anu social context fiom as fai afielu as Austialia anu
Noiway to Iian anu Libya - ueiive two-thiius of total expoits fiom natuial iesouices. 0n foieign aiu
uepenuency, half of the countiies ieceiveu moie than 0S$1Sum pei yeai, anu the top quaitile
(neaily 4u countiies) ieceiveu 0S$4Sum oi moie pei yeai in foieign aiu. Cleaily, foi both foieign
aiu anu natuial iesouices, theie is a substantial gioup of countiies uepenuent on laige sums of
exteinal 'uneaineu' income.

E+-&*( F+4"(. I piesent the iesults of two mouels (Tables 1 anu 2). In the fiist, I exploie the
effects of natuial iesouices anu foieign aiu, inuiviuually, on mateinal moitality iates. uiven the
ueaith of pievious ieseaich on the socioeconomic welfaie effects of the two cuises, this fiist step is
impoitant to confiim that the effects of uiffeient foims of uneaineu income on outcomes extenu
beyonu macioeconomic giowth anu political vaiiables.

G &*)"-!*( &+-)*(%).!*)-"$ = natuial iesouices + institutions2uu8 + |natuial iesouices *
institutions2uu8j + |contiols: liteiacy, gup, populationj
(1a)

G &*)"-!*( &+-)*(%).*%4 H aiu + institutions2u1u+ |aiu * institutions2u1uj + |contiols:
liteiacy, gup, populationj

(1b)

Seconu, I investigate the effect of uiffeient levels of foieign aiu on mateinal moitality, in
iesouice-uepenuent countiies. The inteiest heie is in the effect of uiffeient volumes of aiu flows, in
a countiy that has a pie-existing uepenuency on natuial iesouices. Foimally:

G &*)"-!*( &+-)*(%). H !*)'-*( -"$+'-5"$I@@A J %!$)%)')%+!$I@@A J 2+2'(*)%+! J /42 J
K(+# *%42u1uL &"4%'& *%42u1uL ,%/, *%42u1uM
(2)

Table 1. 0LS iesults, change in mateinal moitality oi uBP giowth - full (1S1 countiy) sample.

(1a) (1b) (1c) (1d)

LffecL on maLernal morLallLy . A Cu growLh
naLres
!"##$%&
(#$#")
---
-2.18
(0.33)
---
ald ---
"$&*
(#$+%)
---
0.24
(0.11)
agg_lnsLlL08
(or) agg_lnsLlL10
-4.19
(0.00~)
-2.21
(0.00~)
0.11
(0.14)
0.10
(0.03)
naLres * agg_lnsLlL08
+$+,
(#$#")
---
0.08
(0.37)
---
ald * agg_lnsLlL10 ---
#$#,
(#$-.)
---
-0.02
(0.01)

N"$'()$> In my econometiic mouelling, simple 0LS iegiessions piesent intuitive pieliminaiy
iesults (Table 1). Foieign aiu has a positive, albeit small, effect on mateinal moitality (column B);

18
howevei, the inteiactive effect of institutions uoes not ieach statistical significance. The opposite
iesults aiise foi natuial iesouices (column A), which have a negative baseline effect, with a positive
inteiaction with institutions.
These iesults aie intuitively in line with what we woulu expect to see, anu accoiu with
obseivations elsewheie in the liteiatuie. Foi aiu to be effective in ieuucing mateinal moitality, the
goveinment (anu the natuie of political institutions) neeu not necessaiily be pait of the causal path.
0ften aiu agencies have been known to ciicumvent goveinments thiough pioject-baseu
appioaches. Inueeu, as Biautigam obseiveu, "as aiu uepenuence incieases, uonois incieasingly
ignoie iules that exist foi aiu to be channeleu thiough the goveinment, anu insteau pioviue theii
aiu off-buuget anu with little input fiom the buieauciacy in its piogiamming" (Biautigam 2uuu:24).
0n the othei hanu, the effect of natuial iesouice ievenues on ieuucing mateinal moitality
iequiies goveinment involvement (anu theiefoie implicate institutional context), since it is
goveinments, not thiiu-paity agencies, which tianslate natuial iesouice ievenues into public (oi
piivate) goous. The negative baseline coefficient shows that natuial iesouices initially have a
negative effect on socioeconomic uevelopment, but this effect becomes positive at high levels of
institutional quality, as inuicateu by the positive inteiaction. As we know, uepenuing on
institutional consiueiations, natuial iesouice ients channelleu thiough the goveinment may be
uiveiteu away fiom public goous piovision (e.g. auuiessing mateinal moitality) towaiu eithei
piivate, pationage goous, oi to 'white elephant' piojects. Acioss all specifications, theie is little
change in effect when contiols foi population size, uBP, anu liteiacy aie intiouuceu.

Table 2. Regiession iesults, categoiical by volume of foieign aiu.
(a) (b) (c)
LffecL on maLernal morLallLy . A Cu growLh
lull Sample, n=131 naL. 8es. uep., n=60 n = 60
naLres
3.84
(0.64)
30.63
(0.29)
-2.18
(0.43)
aldlow
!/&$&*
(#$##/)
!/%$.&
(#$#*)
"#$%
&'#'%(
aldmed !!! !!! )))
aldhlgh
+#$.+
(#$##0)
&,$,*
(#$"%)
)*#+,
&'#+*(
agg_lnsLlL08
-0.78
(0.23)
1.12
(0.30)
0.19
(0.07)

Ny seconu set of iesults peitains to the effect of uiffeient volumes of foieign aiu in
iesouice-uepenuent countiies. I ieuuce the sample to those countiies that ueiive >4u% of expoit
eainings fiom mineial wealth. This subset consists of 6u natuial iesouice-uepenuent countiies.
Noving fiom the full sample to only those countiies uepenuent on natuial iesouice expoits
leaus to inteiesting changes in the effect of foieign aiu on mateinal moitality. In shoit, the effects of
being a low aiu iecipient countiy aie moie negative foi iesouice uepenuent states; on the othei
hanu, theie is much less auueu benefit to being a high aiu iecipient in iesouice uepenuent
countiies. This effect peisists, to a lessei uegiee, even with five influential outliei states (Iiaq,
Yemen, South Afiica, Zimbabwe, anu Angola) iemoveu (not shown). This iesult cleaily shows that
foieign aiu has an effect on socioeconomic welfaie that uiffeis in natuial iesouice uepenuent
countiies fiom those less uepenuent; accoiuingly, the null hypothesis (Bu) can be iejecteu.
As foi the piincipal hypothesis, the iesults aie not as immeuiately appaient, though I woulu
suggest they lean in favoui of suppoiting the aigument that theie is a thiesholu between which
foieign aiu is most +2)%&*( to suppoiting socioeconomic uevelopment. Fiist, we see that foi the
1S1-countiy sample theie is a penalty of -S2 mateinal ueaths pei 1uu,uuu biiths when a countiy

19
uiops fiom meuium aiu volume to low aiu volume (ief. col. A); that is, a countiy has S2 &+-"
mateinal ueaths pei 1uu,uuu biiths. Bowevei, foi natuial iesouice uepenuent countiies, this
penalty incieases to neaily -S8 mateinal ueaths (col. B; a uiffeience between the two samples of
1S%). Accoiuingly, ieceiving a meuium volume of aiu, as opposeu to a low volume, is all the moie
impoitant in a natuial iesouice uepenuent countiy. Seconu, similaily obseive the effects of moving
fiom being a meuium volume aiu iecipient to a high volume iecipient. Foi countiies in the full
sample, the effect of ieceiving moie than 0S$48umyeai in aiu is a ieuuction of mateinal moitality
by neaily 41 ueaths pei 1uu,uuu biiths (col. A), as compaieu to being a meuium volume aiu
iecipient. Bowevei, foi iesouice uepenuent countiies, this effect is only a ieuuction of 27 ueaths
pei 1uu,uuu biiths (col. B; a uiffeience between the two samples of SS%). Again, being a &"4%'&
0+('&" aiu iecipient appeais &+-" +2)%&*( foi iesouice uepenuent countiies, wheieas being eithei
a low, oi especially a high, volume aiu iecipient is moie optimal foi less iesouice uepenuent
countiies. While not conclusive, this suggests theie may be a 'thiesholu' effect, in line with the
piimaiy hypothesis (B1) piesenteu eailiei.
While the scope of this papei is limiteu to offeiing a pieliminaiy analysis, I uo unueitake a
few simple iobustness checks (beyonu the afoiementioneu inclusion of contiol vaiiables) to veiify
that the mouel has been coiiectly specifieu anu the geneial accuiacy of the econometiic iesults. In
teims of geneial 0LS assumptions, the mouels passeu most conventional huiules; p-values iepoiteu
in biackets below each iesult weie mostly significant to conventional levels (p=<u.1). In teims of
goouness of fit, each hau acceptable R
2
anu F-statistic values. Fuitheimoie, in moving acioss
samples - fiom 1S1 countiies to 6u, then with the iemoval of S influential outliei countiies, the
iesults peisist.

DSF 1EHJ=V=JH<HG?E <E: 4GASRAAG?E

Retuining to the cential focus of this papei - the twin cuises of foieign aiu anu natuial
iesouices - these finuings may suppoit the existence of, anu inteiaction between, the two cuises.
To check the iobustness of this asseition, I substitute changes in uBP giowth, in place of mateinal
moitality, as the uepenuent vaiiable; this is intenueu to show the bieauth of effect that uiffeient
volumes of aiu have in iesouice-uepenuent countiies. The effects miiioi what is obseiveu foi
mateinal moitality. In shoit, we see that in iesouice uepenuent countiies, low volumes of foieign
aiu may have a positive effect on uBP giowth iates, while high volumes of foieign aiu have a
haimful effect on uBP giowth (Table 1c,u anu Table 2c).
S
This is line with much eailiei ieseaich on
the macioeconomic effects of foieign aiu. When inteipieteu alongsiue the mateinal moitality uata, I
believe this suggests that, above a ceitain level, uneaineu income is uiveiteu towaiu malfeasance,
with ueleteiious economic anu social welfaie effects.
Aiu, though a foim of uneaineu income anu ceitainly quite fungible in many instances, is
less appiopiiable than ients fiom the expoit of natuial iesouices. With the lattei, most of the ients
enu up passing thiough goveinment coffeis, wheieas aiu money can often be channelleu aiounu the
goveinment. Acioss the full sample, aiu is achieving its intenueu effect of ieuucing mateinal
moitality iates; hence, we see the laige effect of moving fiom low to meuium to high volumes of aiu
(a total change of +7S.22 in Table 2, col. A). Likewise, in a iesouice iich countiy, aiu plays a ciitical
iole foi suppoiting public goous (e.g. impioving mateinal health) '2 )+ * 5"-)*%! 2+%!). Suppoiting
these finuings, in a compaiison oil booms anu auueu aiu flows, Colliei uiscoveieu that ceitain aiu
moualities hau significant auueu value foi economic giowth, unlike oil booms (Colliei 2uu6).
Bowevei, the aiu cuise is at woik in iesouice iich countiies too. In these countiies, beyonu
a ceitain point, the auueu impact of aiu uiops off quickly; compaiing col. A anu B, the uiop fiom

S
Suppoiting my finuing, a stuuy by Wiight (2uu8) obseiveu that in unstable iegimes an inciease in aiu equivalent to 1.S%
of uNI leu to a 2% ueciease in giowth.

2u
4u.94 to 26.68 on the vaiiable 'aiuhigh' may suggest the fungibility of aiu in iesouice-iich countiies.
Similaily, Colliei (2uu6) also founu that auu was subject to fast uiminishing ietuins. Equally, if
theie weie any uoubt that aiu was a cuise in iesouice-uepenuent countiies (anu not, as the
countei-aigument may go, that it is simply the natuial iesouice cuise accounting foi 1uu% of the
malfeasance), the iesults in Table 2 col. C convincingly shows that beyonu a ceitain thiesholu, aiu
also takes on a negative economic effect. This is suppoiteu in eailiei finuings by Bjankov et al
(2uu8), who uiscoveieu the aiu cuise to have laigei obseiveu effects than the cuise of oil.
In summaiy then, togethei I believe the two mouels, iepoiteu in Tables 1 anu 2,
uemonstiate two key (albeit tentative) finuings: (1) that between ceitain levels, aiu has an
impoitant effect on impioving socioeconomic welfaie; anu, (2) above a paiticulai level, excess
amounts of aiu in iesouice-iich countiies leau to the simultaneous existence of an aiu anu iesouice
cuise, with suboptimal effects on human uevelopment.
That being saiu, it shoulu be iepeateu that these aie pieliminaiy iesults anu not intenueu to
ieflect an exhaustive econometiic analysis; that woulu simply be fai beyonu the iemit anu scope of
this papei. Note that thioughout this analysis my intent has not been to inteipiet the size of effect,
but iathei, as a fiist peispective on the uata, to simply queiy the uiiection of effect anu statistical
significance. The pieliminaiy iesults uo iaise a cautionaiy flag, suggesting that consiueiable
auuitional attention is waiianteu in oiuei to bettei unueistanu the ielationship between foieign
aiu anu socioeconomic uevelopment in iesouice-iich countiies. These initial iesults appeai to
suggest that countiies which aie unueiuevelopeu yet iich in natuial iesouices may be able to
hainess these natuial enuowments towaiu impiovements in socioeconomic welfaie, so long as
foieign aiu income iemains below a ceitain thiesholu.


21
/.0(-5$2.0H ).-2(> :9D-2('%2.0$

This papei has piesenteu a fiist look at the co-existence anu inteiaction between the
natuial iesouice anu foieign aiu cuises. While the existing aieas of ieseaich on both cuises have
inuiviuually uevelopeu into theoietically anu empiiically iich bouies of scholaiship, theie has been
suipiisingly little effoit to link the two. Yet, in ieality, it is iaiely possible to sepaiate the effects of
uepenuency on natuial iesouices anu on foieign aiu; many ueveloping countiies now finu
themselves enuoweu with both. Accoiuingly, I have set out to piesent an initial contiibution to this
ielatively novel ieseaich agenua, by offeiing a theoietical fiamewoik built off the founuations of a
wiuely iespecteu political economy mouel of elite behavioui, followeu by a pieliminaiy quantitative
analysis of the likely effects of foieign aiu flows into a natuial iesouice-uepenuent countiy.
Togethei, the theoiy anu empiiics suggest that the two cuises uo inueeu opeiate accoiuingly a
familiai logic, laigely influenceu by institutional context anu the natuie of goveinment income. In
iesouice-iich countiies, auuitional ieceipts of foieign aiu, while beneficial at fiist, ultimately have a
ueleteiious effect.
These finuings have policy implications that extenu beyonu acauemia. 0ntil now, the
policies suggesteu foi auuiessing these cuises have uiffeieu accoiuing to whethei one was
uiscussing natuial iesouices oi foieign aiu. Noiiison pioviues a veiy insightful comment on this,
noting how,

"the geneial thiust of the natuial iesouice liteiatuie has been to take the money out
of the hanus of the goveinment, oi at least attempt to change the way the
goveinment uses it. In the aiu community, by contiast, the movement has been
towaiu ensuiing goveinments have 'owneiship' ovei the way they spenu the
iesouices" (2u1u).

With iespect to managing national natuial iesouice wealth, many of the appioaches being
championeu by the inteinational community - incluuing policy conuitionality anu pioject-baseu
assistance - miiioi the unsuccessful uiiections of foieign aiu policy in the 198us anu 199us. In the
last S to S yeais, the stakes foi auuiessing the oveilap of foieign aiu anu natuial iesouice wealth
have become much laigei. Impioveu teims of tiaue, uiiven by giowing uemanu fiom emeiging
maikets, means many ueveloping countiies aie ieceiving substantial winufall ievenues fiom theii
natuial iesouices (Wainei 2uu6). Nany uevelopeu countiies have iesponueu by pleuging
substantial new foieign aiu allotments to countiies stiuggling to tuin theii iesouice wealth into the
engine foi socioeconomic uevelopment. This is happening uespite a seiious lack of eviuence-baseu
ieseaich on the likely impact of these new aiu flows in iesouice-uepenuent countiies. Few uonois
have acknowleugeu that aiu may be haimful to the policy enviionment, as tentatively uiawn out
fiom the finuings heie; in some instances, it has actually been shown to have been beneficial to
-"4'5" aiu flows at ciitical moments (cf. Bueno ue Nesquita anu Smith 2u1u:946). While we have
incieasingly iich unueistanuings of which aiu policies (e.g. Smith 2uu8:791; Knack 2uu1) anu
which policies towaiu natuial iesouice wealth (e.g. Boschini 2uu6; Noiiison 2u1u:6S) might woik,
the lack of uelibeiate attention on both ievenue stieams simultaneously has hampeieu any attempt
to pioviue useful policy guiuance foi countiies stiuggling with both concuiiently.
This papei has sought to pioviue an impoitant fiist step towaiu auuiessing this. By placing
uiffeient foims of uneaineu income - be they ients fiom foieign aiu oi fiom natuial iesouices -
unuei 'one ioof,' the theoietical mouel piesenteu heiein gives some ieneweu inuication of the
impoitance of institutions, leauei incentives, anu the fungibility of ceitain foims of goveinment
ievenue. 0nlike some of the moie naiiowly piesciibeu policy uiiections given foi impioving the
effectiveness of foieign aiu (anu, moie iecently, foi auuiessing natuial iesouices wealth), these
eaily finuings suggest the neeu to consiuei institutions fiom a political economy peispective that

22
pays caieful attention to the factois uiiving iegime stability anu leauei suivival, anu paiticulaily on
the natuie of each countiy's 'winning coalition.' Fiom heie, we aie encouiageu to think about
policies that may leau to moie pluialistic (though not necessaiily uemociatic) institutions that
woulu incentivize leaueis towaiu the piovision of public, iathei than piivate, goous.
Finally, it shoulu be iepeateu that the conclusions piesenteu heie iepiesent only the fiist in
what neeus to be a iigoious anu uelibeiate ieseaich agenua foi stuuying the simultaneous ieceipt
of laige foieign aiu flows, in natuial iesouice uepenuent countiies. A ieseaich agenua is iequiieu
that compiehensively maiiies togethei the uevelopment of a iobust theoietical mouel (likely
builuing fiom the founuational woik of Bueno ue Nesquita et al), testeu thiough iigoious
econometiic mouelling anu analyzeu anu confiimeu with a seiies of uetaileu multi-countiy
qualitative case stuuies. The initial finuings piesenteu heiein hint at the fiuitfulness of such a tuin
in uiiection foi ieseaich on the 'cuise' of natuial iesouices anu foieign aiu.




2S

O.&6$ /2%*8

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26
"DD*082C "< K'9D-* /.50%&2*$

Afghanistan
Albania
Algeiia
Angola
Aigentina
Aimenia
Austialia
Austiia
Azeibaijan
Bahiain
Banglauesh
Belaius
Belgium
Benin
Bolivia
Botswana
Biazil
Bulgaiia
Buikina Faso
Buiunui
Cambouia
Cameioon
Canaua
Cential Afiican Republic
Chau
Chile
China
Colombia
Congo, Bem. Rep.
Congo, Rep.
Costa Rica
Cote u'Ivoiie
Cioatia
Cuba
Cypius
Czech Republic
Benmaik
Bominican Republic
Ecuauoi
Egypt, Aiab Rep.
El Salvauoi
Eiitiea
Estonia
Ethiopia
Finlanu
Fiance
uabon
uambia, The
ueoigia
ueimany
uhana
uieece
uuatemala
uuinea
uuinea-Bissau
Baiti
Bonuuias
Bong Kong SAR, China
Bungaiy
Inuia
Inuonesia
Iian, Islamic Rep.
Iiaq
Iielanu
Isiael
Italy
}amaica
}apan
}oiuan
Kazakhstan
Kenya
Koiea, Rep.
Kuwait
Kyigyz Republic
Lao PBR
Latvia
Lebanon
Lesotho
Libeiia
Libya
Lithuania
Naceuonia, FYR
Nauagascai
Nalawi
Nalaysia
Nali
Nauiitania
Nauiitius
Nexico
Noluova
Nongolia
Noiocco
Nozambique
Nyanmai
Namibia
Nepal
Netheilanus
New Zealanu
Nicaiagua
Nigei
Nigeiia
Noiway
0man
Pakistan
Panama
Papua New uuinea
Paiaguay
Peiu
Philippines
Polanu
Poitugal
Qatai
Romania
Russian Feueiation
Rwanua
Sauui Aiabia
Senegal
Seibia
Sieiia Leone
Singapoie
Slovak Republic
Slovenia
South Afiica
Spain
Sii Lanka
Suuan
Swazilanu
Sweuen
Switzeilanu
Syiian Aiab Republic
Tajikistan
Tanzania
Thailanu
Timoi-Leste
Togo
Tiiniuau anu Tobago
Tunisia
Tuikey
Tuikmenistan
0ganua
0kiaine
0niteu Aiab Emiiates
0niteu Kinguom
0niteu States

27
0iuguay
0zbekistan
venezuela, RB
vietnam
Yemen, Rep.
Zambia
Zimbabwe



28
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