Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/222447
Authors: 
Wadho, Waqar
Hussain, Sadia
Year of Publication: 
2020
Series/Report no.: 
GLO Discussion Paper 611
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.
Subjects: 
Rent seeking
Political power
Natural resource curse
Ethnic diversity
JEL: 
Q32
D72
O11
O13
Document Type: 
Working Paper

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