Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 223: Windfall Gains, Political Economy, and Economic Development
Carl-Johan Dalgaard () and Ola Olsson ()
Additional contact information
Carl-Johan Dalgaard: University of Copenhagen, Department of Economics, Postal: Studiestræde 6, 1455 Copenhagen
Ola Olsson: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG
Abstract: Natural resource rents and foreign aid have the character of windfall gains that affect economic outcomes both directly and indirectly. Several studies have shown that the indirect effect typically works via institutions like corruption. In this article, we offer a theoretical framework for a joint analysis of how natural resources and aid potentially affect total output in society through rent seeking activities. We survey the existing evidence on both direct and indirect effects of windfalls and provide some new empirical evidence of the association between aid/natural resources and institutions in a large cross-section of countries. Our results suggest that whereas more aid means less corruption, natural resource rents is positively correlated with corruption, although both relationships are nonlinear.
Keywords: institutions; aid; natural resources; windfall gains; economic growth; corruption; rule of law
35 pages, September 5, 2006
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