Beyond divide and rule : weak dictators, natural resources and civil conflict

We propose a model where an autocrat rules over an ethnically divided society. The dictator selects the tax rate over domestic production and the nation’s natural resources to maximize his rents under the threat of a regime-switching revolution. We show that a weak ruler may let the country plunge in civil war to increase his personal rents. Inter-group fighting weakens potential opposition to the ruler, thereby allowing him to increase fiscal pressure. We show that the presence of natural resources exacerbates the incentives of the ruler to promote civil conflict for his own profit, especially if the resources are unequally distributed across ethnic groups. We validate the main predictions of the model using cross-country data over the period 1960-2007, and show that our empirical results are not likely to be driven by omitted observable determinants of civil war incidence or by unobservable country-specific heterogeneity.

Natural resources, redistribution and Human capital formation

How do resource booms affect human capital accumulation? We exploit time and spatial variation generated by the commodity boom across local governments in Peru to measure the effect of natural resources on human capital formation. We explore the effect of both mining production and tax revenues on test scores, finding a substantial and statistically significant effect for the latter. Transfers to local governments from mining tax revenues are linked to an increase in math test scores of around 0.23 standard deviations. We find that the hiring of permanent teachers as well as the increases in parental employment and improvements in health outcomes of adults and children are plausible mechanisms for such large effect on learning. These findings suggest that redistributive policies could facilitate the accumulation of human capital in resource abundant developing countries as a way to avoid the natural resources curse.