Ethnic Diversity, Concentration of Political Power and the Curse of Natural Resources

Waqar Wadho and Sadia Hussain

No 611, GLO Discussion Paper Series from Global Labor Organization (GLO)

Abstract: The empirical evidence suggests that the resource rich countries tend to have poor economic perfor- mance and higher rent seeking. In this paper, we develop a general equilibrium model explaining why natural resources turn out to be a curse in an economy divided into two classes: elite and workers. Our model explains the resource curse in a setup in which governing elite expropriate rents from natural resources which reduces the productive use of these resources. The expected costs and benefits of such rent seeking activities depend on the degree of ethnic polarization which a¤ects the concentration of political power, and on the quality of institutions which constraints rent seeking. The model predicts that in the presence of natural resources and rent seeking, ethnic diversity increases concentration of political power, reduces income per capita and increases income inequality. Moreover, the impact will be higher in economies that depend more on natural resources.

Keywords: Rent seeking; Political power; Natural resource curse; Ethnic diversity (search for similar items in EconPapers)
JEL-codes: D72 O11 O13 Q32 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-env, nep-gro and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Ethnic diversity, concentration of political power and the curse of natural resources (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:611

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