Leader behaviour and the natural resource curse

We discuss political economy mechanisms which can explain the resource curse,in which an increase in the size of resource rents causes a decrease in the economy’stotal value added. We identify a number of channels through which resource rentswill alter the incentives of a political leader. Some of these induce greater investmentby the leader in assets that favour growth (infrastructure, rule of law, etc.), others leadto a potentially catastrophic drop in such activities. As a result, the effect of resourceabundance can be highly non-monotonic. We argue that it is critical to understandhow resources affect the leader’s ‘survival function’, i.e. the reduced-form probabilityof retaining power. We also briefly survey decentralized mechanisms, in which rentsinduce a reallocation of labour by private agents, crowding out productive activitymore than proportionately. We argue that these mechanisms cannot be fully understoodwithout simultaneously studying leader behaviour.[...]