Principal Components of Institutions, Diversification, and Growth

This chapter aims to reassess the cross-country interplay among economic performance, natural resources, and institutions, including inequality. We now assess economic performance not only in terms of per capita incomes but also human development, including longevity and education. Natural resource abundance may stifle growth through its effect on relative prices, such as the real exchange rate, but perhaps more importantly also on rent seeking and extractive institutions, which do not create incentives for people to save, invest, and innovate. A country run by a “stationary bandit” monopolizing the resource rent may, according to our thesis, neglect institutions and policies that benefit the population, including universal education, impartial courts, democracy, and transparency, and stand in the way of equality and ordinary people´s access to their fair share of the resource rents.

Joint work with Gylfi Zoega, forthcoming in Handbook on Inequality of Natural Resources (ed. Graham Davis), Edward Elgar.