Resource Curse, Political Entry, and Deadweight Costs

Economics and Politics, Forthcoming

39 Pages Posted: 22 Feb 2009 Last revised: 23 Jul 2010

See all articles by Kevin K. Tsui

Kevin K. Tsui

Clemson University - John E. Walker Department of Economics

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Date Written: February 19, 2009

Abstract

A simple model of political entry in a two-sector economy is developed to analyze the effects of natural resource wealth on economic policy, political development, and civil insurrection. The model emphasizes the role of political entry and deadweight costs in taxation on the joint determination of these economic and political outcomes. Contrary to popular belief, my model shows that natural resource abundance is an economic blessing even in a rent-seeking society, although resource dependence can be negatively associated with economic performance. In a contested political market, dictators care about popular support and hence resource wealth can help reduce the deadweight cost of taxation (and hence the cost of public good provision). On the other hand, natural resource wealth can be a political curse, because it encourages political entry and hence it induces incumbent dictators to run more repressive regimes. With constant returns counterinsurgent technology, however, the equilibrium number of insurgents is independent of the size of resource wealth. The onset of civil war, therefore, depends on the counterinsurgent technology and whether the costs of entry deterrence are affected by resource wealth. This helps clarify the two seemingly contradictory hypotheses that "resource wealth enhances regime durability " and "resource wealth fuels conflict."

Keywords: resource curse, barriers to entry, deadweight costs

JEL Classification: H11, L12, O13, O43, P26, Q34

Suggested Citation

Tsui, Kevin K., Resource Curse, Political Entry, and Deadweight Costs (February 19, 2009). Economics and Politics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1347805

Kevin K. Tsui (Contact Author)

Clemson University - John E. Walker Department of Economics ( email )

Clemson, SC 29634
United States

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