Saturday, October 25, 2008

Resource curse and the current crisis

Recent international experience supports the resource curse hyphotesis : resource rich countries, mainly when the resources are extracted from a narrow geographic or economic base, tend to have bad institutions and slow growth in the long run. Dube & Vargas have shown the relationship between coffee and oil prices and civil conflict in Colombia (HT Dani Rodrik).
Commodity prices are tumbling, so what will happen? Now there will be no money for useless stuff and the economic reasons for a coup have weakened. I am afraid however that there is a ratchet effect: dictators will stay in power, playing the nationalist card.

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