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ascertain whether a low growth rate with a high level of income per capita is a normal state of
affairs or induced by a resource curse. There is a host of further cross-country econometric
evidence on the curse (e.g., Leite and Weidmann, 1999; Gylfason, et. al., 1999; Busby, et. al.,
2002). An influential study states that primary commodities exports and fraction of GDP in
mining belong to the 22 most robust variables out of a list of 59 variables in explaining cross-
country variations in economic growth (Sala-i-Martin, 1997).
3.5. Resource windfalls increase corruption, especially in non-democratic regimes
Resource dependence elicits corruption and rent seeking via protection, exclusive licenses to
exploit and export resources by the political elite, oligarchs and their cronies to capture wealth
and political power. In a sample of 55 countries resource dependence is indeed strongly
associated with a worse corruption perceptions index (from Transparency International,
Berlin) which in turn is associated with lower growth (Mauro, 1995). Cross-country
regressions also suggest that natural resource wealth stimulates corruption among bureaucrats
and politicians (Ades and Di Tella, 1999). It also crowds out social capital, erodes the legal
system and elicits armed conflicts and civil wars (see section 3.7).
Panel evidence covering 99 countries during 1980-2004 suggests that natural
resources only induce corruption in countries that have endured a non-democratic regime for
more than 60% of the years since 1956 controlling for income, time-varying common shocks,
regional fixed effects and some other covariates (Bhattacharyya and Hodler, 2009).
Effectively, “bad” politicians have a bigger incentive to mimic “good” politicians in
democracies. Democratization may thus be a powerful instrument to curb corruption in
resource rich countries. Another study suggests that the combination of high natural resource
rents and open democratic systems retards growth, unless there are sufficient checks and
balances which is not the case in many new resource rich democracies (Collier and Hoeffler,
2009).9 However, the best evidence for the effect of windfalls on corruption can be found in
quasi-experimental studies. One recent study compares changes in perceived corruption in the
island Sao Tomé which had a significant oil discovery announcement in 1997-99 with the
island Cape Verde which did not find oil, both with similar histories, culture and political
institutions, and uses a unique dataset of the characteristics of all scholarship applicants
during 1995-2005 and tailored household surveys (Vicente, 2010). It finds that corruption
increased by close to 10 percent after the announcements of the oil discovery, but decreased
slightly after 2004. Another study uses data on Brazilian municipalities, a political agency
8 Human capital does not appear in the growth regressions, but the interaction term with resources does.
9 However, longitudinally truncated, pooled cross-sectional evidence may be misleading. Recent
longitudinal evidence exploits within-country variations in resource dependence and regime types to
obtain explicit counterfactuals and suggests that oil and mineral dependence may not be associated with
undermining of democracy or less complete transitions to democracy (Haber and Menaldo, 2008).