Resources, conflict and development choices: Public good provision in resource rich economies

Natural resource wealth can be a curse or a blessing for a country. This paper hypothesises that the provision of productive public goods (or lack of it) is a pathway that helps understand these different outcomes when policy choices are made under the threat of conflict inherent in resource-rich countries. Facing potential conflict over resources, a self-interested ruler may choose to invest in either military repression or in productive public goods-physical and social infrastructure. While both measures aim at preventing conflict, we show theoretically that the optimal policy choice depends on the relative effectiveness of the ruler and the population in contesting the resources. Increased resource wealth provides a disincentive to invest in development if the ruler is more effective than the population in appropriating the resources. Conversely, if the ruler is relatively ineffective, more resource wealth induces higher levels of public goods. We present empirical evidence consistent with the predictions of the model for a sample of 57 countries over three decades. Thus, we provide and test empirically a conditional resource curse theory, postulating that the relative effectiveness of the contenders plays a crucial role in determining whether resources are a curse or a blessing.