Natural Resources: Curse or Blessing?

25

invest in weapons and mining companies to under-invest in mining equipment; and there may
be an incentive to bribe rebels to stave off war (van der Ploeg and Rohner, 2010). Without
binding agreements and sufficient military capacity of the resource-owning faction, war can
be avoided if resource revenue is transferred to resource-poor rebels (Bevia and Corchon,
2010). State capacities should be modelled as forward-looking investments by governments
which are affected by the risk of external or internal war, the degree of political instability,
and dependence on natural resources; furthermore, repression and war may both be driven by
resources and peace, repression and war could be modelled as an ordered probit (Besley and

Persson, 2009b). More empirical work is needed on the relationship between natural resources
and conflict that allows for endogeneity of mining investment and resource extraction,
development of state capacity, and repression outcomes.

Especially point-source resource rents may, by inducing conflict, put democratic
institutions to a survival test. Under democracy politicians are less able to appropriate
resource rents for their own ends, but violent competition with other political fractions is
costly as armies need to be paid and property may be destroyed. Theory suggests that higher
resource rents biases political choice from democracy towards violent conflict especially if
politicians are short-sighted; higher income induced by higher productivity makes democracy
more likely (Aslaksen and Torvik, 2006).

Governments of resource rich countries often seem unable to provide basic security to
their citizens, since natural resource wealth elicits violence, theft and looting often financed
by rebel groups and competing war lords (e.g., Skaperdas, 2002; Mehlum et. al., 2002). The
effect of resources on incidence and duration of civil wars features strongly in political
science (e.g., Ross, 2004; Fearon and Laitin, 2004; Collier et al., 2004). Rival groups fighting
about the control over natural resources may harm the quality of the legal system and thus
undermine property rights. The resulting destruction of output can outweigh the increase in
output due to the resource boom, but not in homogenous countries. There will thus be an
erosion of property rights and a resource curse if the number of rival factions is large and
natural resource revenues are substantial. Fractionalization and fighting can thus lead to over-
dissipation of resource rents. Here we show that the presence of natural resources R can lead
to erosion of property rights and a resource curse, especially if there are many rivalling
fractions (cf., Hodler, 2006). Let group i either work for productive purposes li or fight fi.

Group i obtains utility:
where H, N, φand F denote productivity, the number of rivalling groups, the quality of the
legal system and a measure of incorruptibility, respectively. The specification for Ri indicates

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