Victor Polterovich, V. Popov, Alexander Tonis1
  • 1 National Research University Higher School of Economics, 20 Myasnitskaya Str., Moscow, 101000, Russian Federation

Instability of Democracy in Resource Abundant Countries

2008. Vol. 12. No. 2. P. 176–200 [issue contents]

We analyze data on sustainability of democratic regimes in resource rich countries and suggest a two-period model to explain why resource abundance may lead to instability of democracy in some countries, but does not create any difficulties for democratic system in other ones.

Our central idea is as follows. If a country is abundant by point resources, this creates a prerequisite for resource owners to have dominant economic power. If institutions are weak under democracy, the economic power may be converted into political one. Resource owners («oligarchs») can thrust their preferred decisions on a parliament, bribing politicians. This creates a base for a potential Autocrat's strategy to get power.

Rate of resource rent tax is considered as the only policy instrument in our simple model. The tax affects the income of a representative voter. Choosing a tax rate, Autocrat competes with conventional Politician (a representative political party) for the office.

Our model takes into account the fact that the actual Autocrat’s policy may be different from the announced one. If the difference between the two policies is big, then the public may rise up and throw the Autocrat down.

Our main conclusions from the model exploration are as follows. The probability of democracy preservation is decreasing in the amount of resources, if the institutional quality is low enough. It is independent of resources and is determined only by cultural characteristics of the society, if the institutional quality is higher than the threshold. The level of the threshold, however, is positively dependent on the resource amount. These effects are consequences of the optimal Autocrat policy: the larger is the amount of resources, the stronger are Oligarch’s incentives (inspired by Autocrat’s policy) to bribe politicians.
Citation: Polterovich V., Popov V., Tonis A. (2008) Nestabil'nost' demokratii v stranakh, bogatykh resursami [Instability of Democracy in Resource Abundant Countries]. Ekonomicheskiy zhurnal VShE, vol. 12, no 2, pp. 176-200 (in Russian)
Rambler's Top100 rss