Political Institutions in Resource-Rich Countries

<p class="p1">We present a model of endogenous political institutions that provides several insights on the dependence of a country&rsquo;s political institutions on the abundance in mineral resources. It is generally accepted that resource rents influence political institutions, but there is no consensus whether this link is conditional on the other factors. We argue that the past of political institutions of the country (&rdquo;status quo&rdquo;), i.e. the typical institutions that persisted throughout the country&rsquo;s history may be such factor. In our model the stability of the current political institutions is the result of interaction of the elite&rsquo;s incentives to shift to more expropriative society (autocracy) and the citizens&rsquo; incentives to move towards more redistributive society (democracy). We show that the stability of the political regime is jointly determined by resource rents and status quo institutions of the country. In particular, the model predicts the existence of stable resource-rich democracies and autocracies, and the instability of the intermediate regimes. We also show that the emergence of stable autocracies is less likely if the citizens value their future and that redistribution from the elite to the citizens under the threat of revolution is weaker in resource-abundant countries.</p>