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Windfall Gains, Political Economy, and Economic Development

Author

Listed:
  • Dalgaard, Carl-Johan

    (University of Copenhagen, Department of Economics)

  • Olsson, Ola

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract
Natural resource rents and foreign aid have the character of windfall gains that affect economic outcomes both directly and indirectly. Several studies have shown that the indirect effect typically works via institutions like corruption. In this article, we offer a theoretical framework for a joint analysis of how natural resources and aid potentially affect total output in society through rent seeking activities. We survey the existing evidence on both direct and indirect effects of windfalls and provide some new empirical evidence of the association between aid/natural resources and institutions in a large cross-section of countries. Our results suggest that whereas more aid means less corruption, natural resource rents is positively correlated with corruption, although both relationships are nonlinear.

Suggested Citation

  • Dalgaard, Carl-Johan & Olsson, Ola, 2006. "Windfall Gains, Political Economy, and Economic Development," Working Papers in Economics 223, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0223
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    File URL: http://hdl.handle.net/2077/2690
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    More about this item

    Keywords

    institutions; aid; natural resources; windfall gains; economic growth; corruption; rule of law;
    All these keywords.

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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