Gochberg, Menaldo 2016 - The Resource Curse Puzzle Across Four Waves of Work
The Resource Curse: Exploring Stagnant Growth, Corruption, and Conflict in Resource-Rich Countries
The resource curse puzzle suggests that countries with large resource export sectors, such as hydrocarbons and precious metals, often experience stagnant growth, corruption, authoritarianism, and violent conflict instead of economic growth and improved political institutions. The phenomenon is observed in regions like the Great Arid Belt of Afro-Eurasia, Latin America, and sub-Saharan Africa.
The Resource Curse Puzzle: Unraveling the Impact of Natural Resources on Economic Development
The resource curse puzzle refers to the negative correlation between natural resources and economic development. Countries such as Japan, Taiwan, and South Korea have achieved consistent growth without significant resource deposits. The phenomenon has raised concerns among policymakers and has been widely discussed in the media. The literature on the resource curse has been divided into four waves of scholarship, with oil being considered the most powerful force behind the curse.
The Evolution of Resource Curse Scholarship: Four Waves of Insight
The resource curse literature consists of four waves of scholarship, with early work being inductive, focusing on outcomes of resource dependence in countries like MENA. The second wave used stronger theories and case studies to establish causal mechanisms, often centered on the fiscal contract. The third wave examined how resources may extend or exacerbate conflict and affect democracy, while the fourth wave focused on institutions' role in shaping political and economic paths, using state-of-the-art statistical methods and historical case studies.
Challenging the Assumption: Revisiting the Resource Curse
The resource curse literature has evolved through four waves. The first two waves focused on establishing theories and empirical tests, while the third wave employed sophisticated quantitative methods. The current fourth wave aims to establish causal inference and challenge the assumption of an exogenous resource curse. Menaldo's 2016 book argues that natural resources are not the cause of economic and political issues, but rather a result of pre-existing institutional weaknesses and historical legacies in developing countries.
"The Complex Relationship Between Resources and Development: Revisiting the Natural Resource Curse"
The natural resource curse, which attributes economic stagnation and authoritarianism to resources, has been challenged by arguments that resources can stimulate state capacity and industrialization. Contrary to beliefs in the 1950s and 1960s that resources would stimulate development in low-income countries, scholars found that resource bonanzas did not result in expected developmental success. While initial explanation of underdevelopment focused on economic factors, subsequent theories considered political factors and the role of the state in determining economic growth.
The Rentier State Model and its Impact on Economic Productivity
Beblawi and Luciani (1987) characterized some MENA governments as 'rentier states', which rely on external rents from extractive sectors like oil. This model reduces the need for state investment in infrastructure and leads to decreased state accountability to the masses. Rentier states have resources to coerce and bribe, but are vulnerable to external funding interruptions and can develop a 'rentier mentality', causing a decrease in the connection between hard work and economic productivity.
Resource Curse: Exploring the Economic Consequences of Resource-Rich Countries
The first wave of resource curse literature highlighted the negative effects of resource-rich countries on their economies, citing institutionalized corruption, deteriorated work ethic, and unsustainable economic development due to the lack of backward and forward economic linkages. The studies by Auty and Gelb focused on the 1970s oil booms and observed that resource-dependent countries often failed to follow prudent countercyclical policies, resulting in heavy spending on short-term projects and overborrowing during boom periods.
The Dichotomy of Structure and Agency: Exploring the Second Wave of Research on the Resource Curse
The text discusses the second wave of research on the resource curse, which builds on the fiscal contract model of state building and explores the role of structure versus agency in policymaking. The first wave of work focused on resource-led development and its potentially negative economic effects, such as Dutch disease. The second wave added theoretical contributions and expanded the debate on the resource curse.
Unraveling the Complexities of Resource Curse: A Comprehensive Analysis of the Second Wave
The second wave of resource curse scholarship expanded on the fiscal contract model, linking natural resources to economic stagnation. Scholars explored the influence of multinational companies in extractive sectors, the dependency school of thought, and questions of structure and agency. This wave aimed to provide a general theory to explain the negative effects of resource dependence, building on the first wave's work by Auty and Gelb.
The Political Economy of Natural Resources: Exploring the Resource Curse Puzzle
The text discusses the political economy of natural resources, specifically the resource curse puzzle. It acknowledges that commodity booms can restrict political choices, but individual decisions still shape divergent developmental paths. Michael Ross's cognitive explanation and Karl's concept of 'petromania' are mentioned, but it fails to fully explain the variance among resource-rich countries. The third wave of social scientists improved methodology and used global cross-sectional and panel data to study the correlation between resource dependence and negative outcomes, focusing on authoritarianism and civil conflict.
The Impact of Resource Dependence on Regime Type and Economic Growth
There is a negative relationship between resource dependence and economic growth, with oil having a significant impact on regime type, particularly in low-income countries. Michael Ross's study suggests that oil wealth negatively affects democracy through a rentier effect, while weak or mixed evidence supports repression and modernization mechanisms. Predicting civil conflict, Paul Collier and Anke Hoeffler argued that natural resources were used by rebels as a source of revenue, raising the chances of violence; however, Fearon and Laitin, along with Fearon, countered this claim using better data.
The Evolution of Natural Resources and Conflict
The scholarly work on natural resources and conflict has seen four waves since the turn of the century. The first wave focused on the association between oil and conflict, with state capacity due to oil exportation being a significant factor. The second wave refuted this by suggesting that natural resources increased the risk of conflict most strongly at lower levels of abundance, while at higher levels they likely provided governments with enough revenue to suppress rebellion. The fourth wave of scholars has used advanced statistical methods and refined theories to examine the economic and political effects of resource endowments, with some doubting the causal claims about the effect of natural resource wealth.
Unlocking the Potential of Oil: Overcoming the Resource Curse in South America
The resource curse's exceptions lie in specific conditions such as geographic and institutional factors. South America provides a regional exception, with countries like Chile managing oil booms for social spending and growth without authoritarianism. Thad Dunning suggests that oil's indirect democratizing effects counteract its negative impact on democracies. Michael Ross' book "The Oil Curse" further explores the conditional resource curse's logic, arguing that it depends on state monopolization of the oil sector.
"The Resource Curse Revisited: From Mismanagement to Blessing"
The text discusses the resource curse, stating that strong institutions and revenue sources help countries manage newfound wealth well, while weak states mismanage it. It highlights the importance of departing from the fiscal contract model of state building and critiques shortcomings in earlier approaches. The resource curse's impact on economic growth is debated, with some arguing it indirectly slows growth. Menaldo's work shows that post-1980s data does not support a resource curse, instead revealing a resource blessing.
Rethinking the Resource Curse: Institutions and Politics
The resource curse theory is being challenged by new theories emphasizing intra-elite politics and institutions as the root of problems in resource-dependent countries. Critics argue that resource extraction is not an exogenous variable and that underlying institutions could determine both natural resources and related pathologies. Evidence shows that natural resources, especially oil, do not hinder countries' revenues, growth, or democracies. European and North American history demonstrate the positive role of resources in state-building and industrialization, and the 1973 oil shock refutes the resource curse thesis.
The Institutions Curse: Explaining the Resource Curse in Oil-Rich Countries
The text discusses the resource curse, which affects some oil-rich countries, and offers an explanation through the institutions curse theory. It explains how commitment problems and transaction costs affect power acquisition and maintenance strategies, leading to underdevelopment. The text also refutes the causal relationship between oil and political and economic underdevelopment, suggesting that revenue-starved states with low capacity are more likely to launch hydrocarbons exploration efforts.
The Paradox of the Resource Curse: Exploring the Relationship between Weak States and Natural Resource Sectors
The resource curse puzzle, as studied by Acemoglu et al. (2001) and Menaldo (2016), explores the factors that lead rulers of weak states and international oil companies (IOCs) to create valuable natural resource sectors in developing countries. Despite concerns about the negative impact of these sectors, statistical analyses have shown that weak states are more likely to engage in the oil sector, explore for oil, extract and export it, and tax it. Menaldo's research even suggests that there is a resource blessing, as resources positively affect a country's political economy in the long run.
The Role of Monarchies in Political Stability and Economic Development in the MENA Region
The text discusses the historical association between political stability and monarchy in the MENA region, highlighting that monarchies were more stable during the Arab Spring than republics. It also refutes the idea that oil wealth and oil explain political stability and better institutions in monarchies. The importance of alternative revenue sources, secure property rights, and the role of private, foreign firms in negotiating good deals in weak states are also mentioned.
The Role of Private Firms in Political Economy and Resource Curse Theory.
Summary: Private firms can seize government property, purchase political risk insurance, diversify exposure, and idle drilling during downturns. They can exit jurisdictions that turn against them and engage in corporate social responsibility initiatives to avoid regulatory costs. This helps maintain support for the monarchy, as an invented political culture secures elite rights and interests. Aridity and camel-centered pastoral nomadism have sustained a unique tribal social structure in the MENA region. The resource curse literature has contributed to understanding political economy, authoritarianism, democracy, and violent conflict.
The Correlation Between Resources, Conflict, and Development
The correlation between resources and conflict is significant, yet further analysis is needed to determine the precise relationship and the impact of institutions. Research should focus on how states can effectively utilize resources for development.
The Resource Curse and its Impact on Economic and Political Development
•Some countries have robust economies, high standards of living, and stable political systems, while others struggle with poverty, corruption, authoritarianism, and violence.
•The resource curse hypothesis suggests that the presence of valuable resources like precious metals and hydrocarbons does not lead to economic growth, increased public spending, or better political institutions.
•Nations with large resource export sectors often experience stagnant growth, corruption, patronage, authoritarianism, and violent conflict.
•Figure 21.1 illustrates the spatial variation in income from natural resources in 2006, highlighting regions like the Great Arid Belt of Afro-Eurasia, which have abundant resources but low levels of development.
•Latin American countries like Mexico, Ecuador, and Brazil have faced corruption scandals and economic crises, but oil-dependent Venezuela has seen the most trouble, including democratic backsliding, high inflation, food shortages, and social unrest.
•Sub-Saharan Africa, known for civil war, dictatorship, and poverty, has countries like Angola, South Sudan, and Congo that have not achieved significant development despite their resource dependence.
•Resource-poor countries also play a significant role in this context.
The Resource Curse and Its Implications
•Countries like Japan, Taiwan, and South Korea achieved significant economic and political development without relying on resource deposits.
•The resource curse phenomenon has raised concerns among policymakers due to a general distrust in resource-led development.
•Fig 21.1 shows the per capita income from natural resources worldwide, including oil, natural gas, coal, and precious metals.
•Scholars have developed theories to explain the correlation between natural resources and underdevelopment, but there is no consensus on which resources are considered part of the curse.
•Some renewable commodities, such as timber, have been suggested as contributing to certain development pathologies.
•Oil is often seen as the primary contributor to the resource curse.
•The literature on the resource curse is structured into four waves.
•Table 21.1 provides a summary of these four waves in the resource curse literature.
•There are authors who focus on potential solutions to the resource curse, although this review does not primarily cover that topic.
The Resource Curse Puzzle Across Four Waves of Work
•The resource curse refers to the phenomenon of economic and political dysfunction in countries with abundant natural resources.
•The first wave of scholarship focused on the outcomes of resource dependence, including low public goods provision and accountability.
•Notable contributors in the first wave include Beblawi and Luciani (1987), Gelb (1988), and Auty (1990).
•Concepts and theories explored in the first wave include rents, rentier state, rentier mentality, MENA case studies, dependency theory, and Dutch disease.
•The second wave of scholarship saw authors like Karl (1997) and Ross (2001b) developing stronger theories with a focus on the fiscal contract.
•In the second wave, it was observed that elites relied on resource extraction to avoid making concessions to the masses in exchange for revenue.
•The third wave, with contributions from Sachs and Warner (1995), Ross (2001b), Collier and Hoeffler (1998), and Fearon and Laitin (2003), highlighted the potential for resources to exacerbate conflict and be detrimental to democracy under certain conditions.
•Statistical modeling and a greater focus on conflict and authoritarianism characterized the third wave.
•The fourth wave, represented by Dunning (2008), Ross (2012), Haber and Menaldo (2011), and Menaldo (2016), introduced the concept of the conditional resource curse, emphasizing the role of institutions in shaping political and economic paths.
•The fourth wave utilized state-of-the-art statistical methods and long-run historical case studies to test causal mechanisms.
•Early work on the resource curse was largely inductive, based on observations of dysfunctions in resource-rich countries, predominantly in the Middle East and North Africa (MENA) region.
Waves of Scholars on the Resource Curse and Menaldo's Challenge
•The first wave of scholars focused on a model of state building.
•The second wave sought to establish the external validity of past claims about the resource curse and offered more sophisticated theories.
•The third wave improved quantitative methods and examined long-term case studies.
•The fourth wave includes a focus on establishing causal inference and includes scholars who challenge the prevailing wisdom on the resource curse.
•Menaldo's book challenges the belief that natural resources are randomly assigned, debunks the causal interpretation of the resource curse, and argues that oil and minerals are a blessing.
•Menaldo suggests that legacies endemic to the developing world have driven countries to rely on resource sectors instead of developing diversified economies, and blames bad institutions for condemning nations.
The Resource Curse Puzzle
•Scholars have argued that natural resources can lead to authoritarianism, economic stagnation, and state weakness, but Menaldo suggests that resources can also stimulate state capacity, capitalism, industrialization, and democracy.
•Oil rents do not displace government revenues and are not associated with fewer public goods, dictatorship, poor institutional quality, or barriers to capitalism. Weak states can benefit from their resources despite their institutional challenges.
•The first wave of scholars who observed the resource curse did so in a mostly anecdotal manner, primarily focused on the Middle East and North Africa (MENA) region.
•Economists in the 1950s and 1960s believed that resource wealth would lead to economic development in low-income countries, but the expected developmental success did not materialize in the MENA region.
•Initially, scholars in the first wave ignored political factors and focused on economic and structural processes such as Dutch disease (the effect of primary commodity exports on other sectors of the economy) and the long-term decline in commodity prices.
•Dependency theorists also attributed underdevelopment to the global value chain, where core countries benefited from manufacturing finished products and importing raw materials, while peripheral countries exporting raw materials were at a disadvantage.
•There was a need to move away from the passive view of the state in understanding resource-led development.
Rentier States and the Fiscal Contract Model
•Beblawi and Luciani (1987) examined the means by which states financed themselves, particularly the concept of rentier states.
•Rentier states are characterized by their dependence on externally generated rents from extractive sectors, such as oil, due to the low costs of resource extraction and production compared to global market prices.
•The external nature of these rents, the isolation of extractive sectors, and foreign ownership of firms in these sectors are critical factors.
•Abundance of external rents allows a state to sustain itself without investing in bureaucratic capacity and public infrastructure for development.
•On the other hand, states reliant on internally generated rents require a productive class and effective tax-collecting capacity for state revenues.
•The fiscal contract model, influenced by European feudal histories, sees state building and democracy as a compromise between the ruling elite and the masses, where public goods are exchanged for tax revenues.
•Rentier states with external revenue sources have reduced accountability to the masses and can rely on coercion and bribery, while also being vulnerable to funding interruptions.
•Proponents of the rentier state model argue that it fosters a pernicious "rentier mentality" where the connection between hard work and economic productivity diminishes for the state and the public.
The Resource Curse Puzzle Across Four Waves of Work
•The cultivation of citizens dependent on the state's distribution of rents resulted in the deterioration of the work ethic in Gabon.
•Scholars did not establish a clear causal link between living under a rentier state and the rentier mentality.
•Psychological explanations, such as 'petromania,' emerged in the second wave of resource curse literature.
•Case studies by Auty and Gelb focused on boom and bust periods, Dutch disease, and the ability of economies to absorb windfall gains.
•Resource-dependent states often failed to follow countercyclical policies, save revenue for bust periods, and invest in public goods.
•The absence of backward and forward economic linkages hindered resource-dependent states from achieving sustainable economic development.
Waves of Work on the Resource Curse
•Gelb and Auty's work on resource-led development provided a foundation for future scholars to articulate and test hypotheses using cross-national and time-series data.
•Some economists proposed various aspects of commodity wealth that might lead to substandard economic performance, including the volatility of global commodity prices and the phenomenon of Dutch disease.
•Dutch disease refers to the appreciation of the value of domestic currency in real terms due to inflows of foreign currency, making non-commodity exports less competitive on world markets.
•The loss of learning by doing may occur as the economy shifts from manufacturing to resource extraction, as suggested by Matsuyama and others.
•The impact of resource volatility is difficult to separate from political factors, but Dutch disease is seen as an unavoidable economic reality for the world's largest oil exporters.
•The second wave of work on the resource curse, during the 1990s and early 2000s, focused on theories drawing on the fiscal contract model of state building.
•This wave of work also contributed to debates on the role of structure versus agency in policymaking and drew upon the dependency school's explanation for underdevelopment in former colonies.
Resource Curse and the Role of Natural Resources in Economic Stagnation
•The fiscal contract model provides a comprehensive theory for understanding the relationship between natural resources and economic stagnation.
•During the third wave of scholarship, political scientists expanded their analysis to include authoritarianism and violent conflict as potential outcomes of resource dependence.
•Terry Lynn Karl's book "The Paradox of Plenty" focuses on the fiscal contract model of state building, particularly in petro-states where governments rely on oil rents for fiscal dependency.
•Sudden increases in oil windfalls exacerbate chronic problems in petro-states, leading to a decline and destabilization despite copious oil revenues.
•In the second wave, scholars responded to existing explanations for disparities in development levels, with some adopting the dependency school of thought to understand the resource curse.
•Foreign ownership of primary product companies in former colonies isolates local economic benefits, with the gains from trade accruing to industrialized countries instead of the poor countries providing raw materials.
•Richard Auty and Gelb formulated a general theory to explain the negative effects of resource dependence, extending from their previous work in the first wave of resource curse scholarship.
•Structure and agency were also important considerations for second-wave scholars, with questions raised about the impact of resource dependence on the balance between structure and agency.
The Resource Curse Puzzle Across Four Waves of Work
•The deterministic tone of some earlier work on the political economy of natural resources is acknowledged, which suggests that commodity booms limit political choices available to elites.
•Karl argues that divergent developmental paths can still be traced to individual decisions made in these contexts.
•Alexander Cooley summarizes Karl's argument by stating that overspending on projects of dubious economic merit during the boom cycle constrains policy makers in oil states to right the development course in the medium and long terms through relationships with business elites, state-operated industries, and rent seeking.
•Michael Ross's cognitive explanation for institutional breakdown during commodity booms is mentioned - "petromania" leads to increased government spending on patronage and pork barrel projects instead of investing in infrastructure and public goods.
•Karl's explanation for the negative effects of resource wealth is seen as ad hoc and fails to fully explain the variance among resource wealthy countries in their reactions to exogenous commodity booms.
•The third wave of social scientists studying the resource curse focused on improving statistical inference and used global cross-sectional and panel data.
•The third wave also saw the rise of empirical studies exploring the link between natural resources and authoritarianism, as well as civil conflict.
•Sachs and Warner were among the first to use large-n data to suggest a resource curse effect on economic growth.
•Sachs and Warner examined the impact of primary product exports to GDP ratios in 1971 on GDP growth over the next 20 years, after controlling for other factors.
•Their findings contribute to the understanding of the negative outcomes associated with resource dependence.
Relationship between Resource Dependence and Economic Growth
•Sachs and Warner used a broad definition of natural resources, including agricultural products, and found a significant negative relationship between resource dependence and economic growth.
•Most subsequent research has focused on a narrower range of products, particularly oil and other hydrocarbons, which have shown the most significant and robust effects.
•Michael Ross conducted a study using panel data from 1971 to 1997 and found that oil has a detrimental effect on democracy in oil-poor and low-income countries.
•Ross suggested that externally generated rents, rather than food and nonfood agricultural exports, have the most significant impact, supporting the resource curse claim.
•Ross tested three possible mechanisms for the resource curse: rentier effect, repression effect, and modernization effect. He found suggestive evidence for the rentier effect but weak or mixed evidence for the other two mechanisms.
•Paul Collier and Anke Hoeffler were among the first to propose that natural resource wealth could predict civil conflict. They argued that rebels use these resources as a source of revenue, financing their operations and increasing the likelihood of violence.
•However, Fearon and Laitin, as well as Fearon, challenged Collier and Hoeffler's evidence, suggesting that it was fragile in the face of better data. They proposed that oil should be seen as a potential prize for rebels if victorious.
The Resource Curse and Oil-Related Conflict
•The association between oil and conflict is influenced by state capacity due to oil exportation.
•Collier and Hoeffler refined their argument by suggesting that natural resources, like oil, increase the risk of conflict at lower levels of abundance, but at higher levels, they provide enough revenue for governments to suppress rebellion.
•Numerous scholarly articles have emerged since the turn of the century examining the impact of natural resources on conflict, including resources other than oil.
•Other studies have explored whether the discovery of resources can spark conflict and have provided more careful analyses of the mechanisms linking resources and conflict.
•Ross (2012) argues that oil-rich countries are twice as likely to descend into civil conflict as other nations, although oil is seldom the sole determining factor.
•The latest wave of scholars examining the resource curse applies advanced statistical methods and refined theories, with a focus on establishing causality.
•Some scholars in this wave challenge the validity of the causal claims regarding the effects of natural resource wealth, particularly oil.
•There is a subgroup of scholars who hold a conditional view of the resource curse, suggesting that the negative effects of resource dependence only occur under specific conditions.
•This view arises from the results of rigorous methodological work in the previous wave, which showed that certain countries seemed to escape the negative consequences of developing their extractive sectors, such as Canada or Norway.
The Resource Curse and its Exceptions
•The resource curse is a phenomenon that describes the negative consequences of resource dependence on a country's economy and governance.
•Exceptions to the resource curse have pointed to certain conditions that mitigate its effects, including geographic and temporal factors, as well as institutional variables.
•South America, particularly countries like Chile, has managed to successfully translate oil booms into greater social spending and economic growth without descending into authoritarianism.
•Thad Dunning argues that the degree of income inequality in the region plays a role in counteracting the negative effects of resource dependence on democratic institutions.
•Oil's indirect democratizing effects, such as lower redistributive costs, potentially reduce elites' anxiety about losing political power.
•Dunning's theory can also explain other anomalies, like the democratic nature of Botswana, which heavily relies on diamond mining.
•Michael Ross, in his book "The Oil Curse," presents a more advanced articulation of the conditional resource curse logic.
•Certain distinctive features of oil, such as source, size, volatility, and secrecy, contribute to negative outcomes in terms of regime longevity, democratic backsliding, women's involvement in the economy, and the duration of civil conflicts.
•Ross argues that the conditionality of the resource curse depends on whether the state monopolizes the oil sector.
•Many scholars conclude that the resource curse is dependent on the political and economic institutions in place at the time of resource discovery.
Resource Curse and State Management of Resource Wealth
•States with strong institutions and reliable sources of revenue tend to handle newfound resource wealth well.
•Weak states often mismanage resource wealth, become overly dependent on it, and siphon off rents to elites instead of investing in public goods.
•Countries like Canada, Norway, and Australia are prosperous due to their effective management of resources.
•On the other hand, countries like Papua New Guinea and Myanmar struggle with the resource curse.
•The fourth-wave scholarship on the resource curse departs from the fiscal contract model of state building.
•Dunning (2008), Menaldo (2016), and Ross (2012) are recent entries in this scholarship that have abandoned or modified the traditional approach.
•Menaldo identifies some shortcomings of the old approach, such as the view of elites as a unitary group and the lack of consideration of opportunism and collective action problems.
•Ross retreats from earlier claims about oil's negative impacts on economic growth and argues that oil states are average in this aspect.
•Ross suggests that oil may indirectly slow growth by restricting economic opportunities for women.
•Menaldo responds to this argument by showing that there is no evidence of a curse when controlling for factors like oil income per capita, giant oil field discoveries, regional oil stocks, and oil exploration efforts.
•In fact, there is strong evidence of a resource blessing across different time periods.
•Addressing the shortcomings of the old approach leads to the production of a more nuanced understanding of the resource curse.
The Resource Curse and Its Critics
•An emerging set of authors question the logic and evidence of the resource curse
•Critics argue that institutions are the root of problems in resource-dependent countries
•Resource extraction should not be seen as an exogenous variable, as it is determined by underlying institutions
•Menaldo (2016) challenges the resource curse with evidence that natural resources do not harm countries' ability to generate revenues, grow their economies, or become and stay democratic
•The first puzzle is the positive role of natural resources in European and North American history, contributing to the consolidation of powerful empires and states, and fueling industrial revolutions
•The second puzzle is the disproval of the resource curse thesis by the first global oil shock in 1973, which led to improved state capacity, democracy, and economic development in countries that became significant oil exporters
•The third puzzle pertains to the MENA region, often held up as an example of the resource curse
Resource Curse and the Institutions Curse Theory
•The resource curse theory suggests that countries with abundant natural resources, such as oil, tend to be underdeveloped even before the discovery of these resources.
•Oil-rich countries like Iran and Saudi Arabia are not significantly different from oil-poor countries like Morocco and Jordan.
•The differences observed between oil-rich and oil-poor countries tend to favor countries like Qatar and the United Arab Emirates, which appear more attractive than countries like Yemen and Syria today.
•The author draws on the neo-mercantilism literature and the factor endowment approach to explain why societies do not adopt good institutions.
•The institutions curse theory posits that commitment problems and transaction costs influence elites' strategies of power acquisition and maintenance.
•When elites cannot make credible commitments to respect property rights and the fiscal transaction costs associated with taxing the economy are high, they turn to strategies that generate rents and political loyalty.
•Natural resource extraction, especially oil, becomes a lucrative strategy for elites but comes at a long-term cost, promoting the cartelization of property rights, weakening state capacity, and fueling underdevelopment.
•The author challenges the view that there is a causal relationship between oil and political/economic underdevelopment.
•He argues that revenue-starved states with low capacity are more likely to engage in oil exploration, increase production, export oil, tax it heavily, and attract higher levels of capital in the hydrocarbons sector.
The Resource Curse Puzzle and the Role of Oil Companies
•Acemoglu et al. (2001) conducted research on the resource curse puzzle.
•National Oil Companies and private investors play prominent roles in the oil industry.
•International Oil Companies (IOCs) use power, money, and information to protect their property rights.
•IOCs engage in regulatory arbitrage to avoid environmental regulations and higher taxes.
•Weak states and IOCs construct big and valuable natural resource sectors in developing countries for demand- and supply-side reasons.
•Menaldo (2016) conducted statistical analyses that support the claims made above.
•Weak states are more likely to explore, extract, export, and tax oil regardless of how oil or state capacity is operationalized.
•Menaldo explores the possibility of a resource blessing instead of a curse.
•Menaldo evaluates the relationship between oil and various political and economic outcomes globally since 1930.
•Menaldo finds evidence of a resource blessing across the board, even after considering the effects of oil on democracy.
•Menaldo provides evidence for the mechanisms explaining the positive association between resources and a country's political economy, particularly in Latin America.
•Menaldo attempts to explain political instability associated with the resource curse.
Demand and Supply Side Reasons for Oil in the Developing World
•Weak states have few alternative revenue sources, leading them to rely on oil production and taxation.
•Political risk is high in non-oil economic activities due to insecure property rights and volatile policies.
•Host governments can mitigate political risk by offering generous profit recovery concessions in production sharing contracts.
•Host governments can relax health, safety, and environmental regulations, often externalizing costs on marginalized communities.
•Private, foreign firms can defend themselves in weak states by using informational advantages, strong bargaining leverage, and vulnerability of host governments.
•Private firms can rely on informational advantages and international arbitration to protect their rights and interests.
The Resource Curse Puzzle Across Four Waves of Work
•Private firms can seize the property of governments that renege on deals.
•Private firms can purchase political risk insurance, which is subsidized.
•Private firms can hedge against risks associated with any one oil play by diversifying their exposure at the global level.
•Private firms can ramp down investments in marginal or risky fields during price downturns by idling drilling and exploration.
•Private firms will use the threat of exiting jurisdictions in which regulations turn against them.
•Private firms will be on the ground floor during the crafting of land use and energy legislation, and even fiscal policy, to make sure their interests are represented.
•Private firms will strategically use corporate social responsibility initiatives at the local level to avoid regulatory costs at the national level that would proscribe externalities.
•Monarchy and certain outcomes in the MENA region are correlated.
•Menaldo introduces a theory about how an invented, yet historically rooted, political culture can solve a ruler's credible commitment problem.
•Securing elites' rights and interests bolsters their support of the regime.
•Monarchic political cultures have evolved over the history of the MENA region.
•Extreme aridity and pastoral nomadism centered on camel herding sustained a tribal social structure in the MENA region.
•This unique equilibrium held despite millennia of imperialism, Islam, and European colonialism.
•The resource curse literature has played a role in understanding the political economy of development, as well as authoritarianism, democracy, and violent conflict.
•The scholarship has become more sophisticated in theory and methods over time.
•Many analyses have been plagued by incomplete data and omitted variables.
•The latest wave of scholars has brought a critical eye to these problems.
•The resource curse may simply be a matter of incomplete data and omitted variables.
The Relationship Between Resources and Conflict
•The association between resources and conflict has been shown to exist across various resources.
•The nature of this association may vary depending on whether one is examining the onset or duration of war.
•The precise relationship between resources and conflict requires further analysis.
•It is important to determine if this association is influenced by an omitted variable, such as institutions.
•If the institutions curse hypothesis is supported, it is necessary to explore how states can effectively utilize their resources for development.