Essays on Natural Resources, Inequality and Political Stability

This thesis consists of three distinct essays on natural resources, inequality and stability. In the first essay, we retest the resource curse hypothesis that natural resources have a negative impact on growth. We use a panel fixed effect model to examine the effects of higher resource rents and exports from different types of resources on income level and growth rate. We show no evidence of the resource curse; however, we find that natural resources are beneficial for the economy as higher resource rents and exports increase income level and promote growth. In the second essay, we develop a theoretical model on the use of public resources by a political regime to generate political groups’ consensus and regimes’ stability. We analyze a baseline model of a prestige-motivated regime that maximizes consensus from two groups that differ in their political preferences: elite and egalitarian. We show that while an increase in public resources always reduces the probability of coups organized by the elite, it increases (reduces) the probability of revolutions organized by the egalitarian when the initial level of public resources is low (high). Overall, regime’s stability is always increasing in public resources. Furthermore, we show that higher political influence and larger size of the elite group increase the regime’s stability only for high levels of resources. In the third essay, we empirically test our theoretical predictions. We first use a semi-parametric regression and obtain strong supporting evidence that higher income increases regime’s stability. We show that the probability of coups always decreases with income, whereas the probability of a revolution is a non-linear function of income. We extend the analysis and find that higher income increases democracy, whereas inequality has the opposite effect. We also find that higher income and inequality make the country prone to external conflicts and government repressions.