Resources and Governance

The project concentrates on the linkages between resource abundance, income distribution, and governance by analyzing resource rich economies, mostly in Africa and in the post-soviet space, which perform badly despite their immense natural wealth. Apart from short periods of rising commodity prices, these countries have grown more slowly than their resource-poor counterparts and are prone to political instability and bad governance. The reasons for this phenomenon are manifold: Dutch Disease effects stemming from negative externalities for non-resource sectors, macroeconomic volatility due to volatile commodity prices and rent seeking activities, which stabilize autocratic regimes or lead to open conflict including civil strive. All this aspects have severe implications in terms of distributional conflicts and a persistently low level of governance which, in turn, reinforce the misallocation of resources and cement negative stability characterized by autocracy and poverty.

The project concentrates on political-economy aspects of resource based development by employing macro-micro-simulations, panel analysis, and comparative country studies.

The basic questions are:

• How can negative stability in resource rich countries be overcome? 
• What are potential internal and external drivers of such a change? 
• How do these internal and external drivers interact?

More specifically, the project focuses on the central roles of governments’ fiscal policies and external actors. Fiscal policy would be key to avoid negative effects of resource exploitation on income distribution and poverty but it may rather be used for preserving negative stability. Central to this are transfer systems allocating rents to elites relevant for maintaining a system of repression and bad governance.

Related questions are:

• What are the distributional effects of fiscal policy which either maintain or reduce support for bad governance regimes?
• Does a resource boom induce governments to put unsustainable policies in place and maintain bad policies for too long?

External Actors, i.e. neighbouring countries or regional integration schemes, play an ambiguous role in influencing government policies. They determine the political economy of reforms in resource-rich countries by either providing incentives for better governance or rather support negative stability in the case of resource based cooperation schemes.

Related questions are:

• Can external actors induce better policies by conditioning cooperation?
• Is regional or neighbourhood cooperation determined by trade in commodities?