Testing the neocon agenda: Democracy in resource-rich societies

Resource-rich Countries have tended to be autocratic and also have tended to use their resource wealth badly. The neoconservative agenda of promoting democratization in resource-rich Countries thus offers the hopeful prospect of a better rise of their economic Opportunities. This paper examines whether the effect of democracy on economic performance is distinctive in resource-rich societies. We show that a priori the sign of the effect is ambiguous: Resource rents could either enhance or undermine the economic consequences of democracy. We therefore investigate the issue empirically. We first build a new dataset on country-specific resource rents, annually for the period 1970-2001. Using a global panel dataset, we find that in developing countries the combination of high natural resource rents and open democratic systems has been growth-reducing. Checks and balances offset this adverse effect. Thus, resource-rich economies need a distinctive form of democracy with particularly Strong checks and balances. Unfortunately, this is rare: Checks and balances are public goods and so are liable to be undersupplied in new democracies. Over time they are eroded by resource rents. (C) 2008 Elsevier B.V. All rights reserved.