TY - JOUR

T1 - Stochastic petropolitics: the dynamics of institutions in resource-dependent economies

AU - Boucekkine, Raouf

AU - Prieur, Fabien

AU - Vasilakis, Chrysovalantis

AU - Zou, Ben

PY - 2021/1/1

Y1 - 2021/1/1

N2 - We investigate the link between resource revenues volatility and institutions. We build a stochastic differential game with two players (conservatives vs. liberals) lobbying for changing the institutions in their preferred directions. First, uncertainty surrounds the dynamics of institutions and theresource revenues. Second, the lobbying power is asymmetric, the conservatives’ power being increasing with resource revenues. We show the existence of a unique equilibrium in the set of affinestrategies. We then examine to which extent uncertainty leads to more liberal institutions in the long run, compared to the deterministic case. We finally explore the institutional impact of volatility using a database covering 91 countries over the period 1973-2005. Focusing on financial liberalization,we find that as oil revenue volatility increases, liberalization goes down. This result is robust todifferent specifications and sample distinctions.

AB - We investigate the link between resource revenues volatility and institutions. We build a stochastic differential game with two players (conservatives vs. liberals) lobbying for changing the institutions in their preferred directions. First, uncertainty surrounds the dynamics of institutions and theresource revenues. Second, the lobbying power is asymmetric, the conservatives’ power being increasing with resource revenues. We show the existence of a unique equilibrium in the set of affinestrategies. We then examine to which extent uncertainty leads to more liberal institutions in the long run, compared to the deterministic case. We finally explore the institutional impact of volatility using a database covering 91 countries over the period 1973-2005. Focusing on financial liberalization,we find that as oil revenue volatility increases, liberalization goes down. This result is robust todifferent specifications and sample distinctions.

U2 - https://doi.org/10.1016/j.euroecorev.2020.103610

DO - https://doi.org/10.1016/j.euroecorev.2020.103610

M3 - Article

VL - 131

JO - European Economic Review

JF - European Economic Review

SN - 0014-2921

M1 - 103610

ER -