What have we learned about the resource curse?

Michael L. Ross

February 12, 2014

Abstract

Since 2001, hundreds of academic studies have examined the resourcecurse, meaning the claim that natural resource wealth tends to perverselyaffect a countrys governance. There is now robust evidence that one typeof mineral wealth, petroleum, has at least three harmful effects: it tendsto make authoritarian regimes more durable, to increase certain types ofcorruption, and to help trigger violent conflict in low and middle incomecountries. Scholars have also made progress toward understanding themechanisms that lead to these outcomes, and the conditions that makethem more likely. This essay reviews the evidence behind these claims,the debates over their validity, and some of the unresolved puzzles forfuture research.

1 IntroductionDoes natural resource wealth lead to political dysfunction? From 2001 to 2013,hundreds of academic studies addressed this question. There is now considerableevidence that under certain conditions one type of resource wealth petroleum tends to produce a political resource curse.

The resource curse might be defined as the perverse effects of a countrysnatural resource wealth on its economic, social, or political well-being.1 Theterm was first used in print by economic geographer Richard Auty in 1993.

Over the last decade it has been adopted by both scholars and policymakersas a way to explain a wide range of maladies in scores of countries, particularlyin Africa, the Middle East, Latin America, and the former Soviet Union. Newinitiatives to stop the resource curse have been launched by the World Bank,the G20, and the United Nations Development Program. Two multistakeholderagreements the Kimberley Process Certification Scheme and the ExtractiveIndustries Transparency Initiative have been forged. Both the United States

Professor, UCLA Department of Political Science. Comments welcome; please send tomlross@polisci.ucla.edu.

1I use the term oil to refer to both oil and natural gas; and the terms resource (or oil)wealth or resource (or oil) abundance to refer to the value of a countrys natural resource(or petroleum) production, on a per capita basis.

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and the European Union have adopted new transparency laws that are explicitlydesigned to alleviate the curse. Dozens of nongovernmental organizations, newand old, have devoted themselves to this issue.

The idea of a resource curse has also influenced many debates in politicalscience for example, on the causes of democratic transitions (Gassebner, Lamlaand Vreeland, 2012), the role of taxation in state-building (Brautigam, Fjeldstadand Moore, 2008; Smith, 2008), the consequences of foreign aid (Bermeo, 2011;Ahmed, 2012) and the factors affecting the onset, duration, and severity of civilwar (Fearon and Laitin, 2003; Weinstein, 2007).

A large literature in economics asks how natural resource wealth affectseconomic growth (Wick and Bulte, 2009; van der Ploeg, 2011; Frankel, 2012).This review examines the political effects of resource endowments, particularlyon government accountability, the quality of state institutions, and the incidenceof civil war. It addresses three questions:

What are the most robust findings on these issues? What are the major challenges to these findings, and how valid are they? What are the most important gaps in our knowledge?

I argue below that there is strong evidence that one type of resource wealth petroleum has at least three important effects: it tends to make authoritarianregimes more durable; it leads to heightened corruption; and it helps trigger vi-olent conflict in low and middle income countries, particularly when it is locatedin the territory of marginalized ethnic groups. The affects on authoritarianismand conflict appear to be recent phenomena, emerging after the 1970s.

There are two main debates about these effects. One is about the conditionsunder which oil has these effects, and the mechanisms that bring them about.Scholars generally agree that these effects are conditional and hence limited inscope, but there is no consensus over what those conditions are. A large fractionof these hypothesized conditions are measured in ways that are collinear, makingit hard to distinguish among them. There are also conflicting arguments aboutthe mechanisms that generate these conditional effects, although on one issue the relationship between petroleum and civil conflict many studies now pointto a similar underlying process.

The second debate is over whether the resource curse is real or illusory.While most studies report evidence of some type of resource curse, a significantminority suggests that the appearance of a resource curse is a statistical artifactcreated by either endogeneity or omitted variable bias. Others raise a second ob-jection: that petroleums damaging effects may be real, but are counterbalancedby beneficial effects that are commonly overlooked.

Almost all research on the resource curse is based on observational data,which makes it hard to settle these disputes. It is also hard to adjudicate claimsabout phenomena that are poorly-measured (like the quality of institutions) orinfrequently observed (like civil wars). Still, I argue that the first challenge (thatthe appearance of a resource curse is due to endogenous or omitted variables)

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is contradicted by a large body of evidence, while the second challenge (thatharmful effects are offset by beneficial ones) may sometimes be valid.

Some scholars have argued there is a third debate underway, between thosewho argue resource wealth is unconditionally harmful and damages all statesequally, and those who suggest it is only harmful under certain conditions(Smith, 2007; Morrison, 2013). Yet it is hard to find any academic study thatdefends the first position. It would be more accurate to note that there has beena shift in emphasis: studies in the late 1990s and early 2000s paid more atten-tion to identifying the average treatment effect of natural resource wealth on apopulation of states; more recent studies have tried to explain why outcomesvary in the treated population. The two questions, however, are complementaryparts of the same research agenda.

Finally, this essay points to a series of issues that are still unresolved. Theseinclude the scope of the resource effect, the mechanisms and conditions thatexplain these effects, and how the resource curse can best be remedied.

Along the way it points out that research on the resource curse is constrainedby the availability of high-quality data. Some of the data that scholars mostfervently covet for example, on the true size and disposition of natural re-source revenues, or the operation of state-owned petroleum companies areoften concealed or misreported by governments. Until recently, most studieshave been based on the statistical analysis of large datasets with a single obser-vation for each country and year datasets that have been mined up to (andperhaps beyond) the point of diminishing returns. There is a promising trendtoward subnational research, where the data are often better and identificationstrategies more convincing. Yet not all questions are amenable to subnationaltests; the effects of resource wealth on authoritarian durability, for example, isexceedingly hard to test with subnational data.

The next section of this essay looks at how studies of this issue define andmeasure the resource part of the resource curse. The following three sectionssummarize research on the ways that natural resources affect key outcomes:democracy and democratization (section three), the quality of government in-stitutions (section four), and the incidence of civil war (section five). The finalsection looks at the key puzzles for future research.

2 What are natural resources and how are theymeasured?

Over the past two decades, scholars who study the resource curse have definedthe term natural resources in dozens of ways. This is both good and bad: ithas made it possible for researchers to explore many potentially-consequentialdimensions of resource wealth, but it has also made it easy for them to findmeasures that are spuriously correlated (or uncorrelated) with a given outcome.

There are three components to most definitions of natural resources. Thefirst is the type of resource. Early studies by Sachs and Warner (1995) and

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Collier and Hoeer (1998) looked at broad measures of resources that includedpetroleum, other minerals, and agricultural commodities. Today agriculturalproducts are rarely seen as part of the resource curse both because they areproduced, not extracted, and hence fail to meet standard definitions of naturalresources; and because they are seldom correlated with unfavorable outcomes.A relatively small number of studies has looked closely at the effects of non-fuel minerals (Sorens, 2011), forest products (Price, 2003; Harwell, Farah andBlundell, 2011), and commodities more generally (Besley and Persson, 2011;Bazzi and Blattman, 2013).

Only one type of resource has been consistently correlated with less democ-racy and worse institutions: petroleum, which is the key variable in the vastmajority of the studies that identify some type of curse. A wider range of re-sources including petroleum, gemstones, and other types of minerals hasbeen linked to civil conflict. Several studies have tried to explain why differentresources seem to have different political consequences, but no explanation hasbeen subject to careful testing (Le Billon, 2001, 2012; Ross, 2003).

The second component identifies the salient quality of the resource. Commonchoices include the quantity of production, the value of production, the rentsgenerated by production, and the value of exports. A smaller number of studieshave looked at the value of petroleum or mineral reserves, petroleum discoveries,the number of workers employed in the resource sector, the international priceof a given resource, the depletion of the resource, and the government revenuesgenerated by the resource sector.

The final component is the method used to normalize these values to makethem comparable across countries or regions that is, whether to express themeasured quantity as a fraction of GDP, a fraction of total exports, a fractionof total government revenues, by land area, or on a per capita basis.

These three components can be combined in dozens of ways to generatealternative measures of a countrys natural resource endowment. There is nosingle best measure: different indicators focus on different kinds of resources,and different properties of these resources, and hence can be used to evaluatedifferent theories.

Some measures are endogenous to the outcomes they purportedly explain.For example, one common measure oil export dependence, meaning petroleumexports as a fraction of GDP is probably biased upward in poorer and moreconflict-prone countries, since they are typically too impoverished to consumethe fuel they produce, making them exporters by default. On a per-capitabasis, the US produces more oil than Nigeria, but Nigeria exports more thanthe US, because the US is wealthier and consumes all of its oil domestically. Thismakes it hard to interpret correlations between oil export dependence and thefrequency of violent conflict, for example; both might be independently boostedby a countrys poverty.

One of the most potentially-important measures is also among the mostdifficult to obtain: government revenues from the extractive sector. Statescollect these revenues in a variety of ways: through royalties, corporate taxes,concession fees, transit fees, signing bonuses, in-kind payments, and revenues

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from state-owned companies. Different types of revenues may accrue to differentarms of the state like oil and finance ministries, state-owned oil companies,and local governments and may or may not be transferred to a central account.Governments can also hide their revenues in a variety of ways for example,by understating the value of the fuel they sell domestically to their citizens.Even second-best indicators, like the World Banks non-tax revenue measure,typically fail to capture much of these revenues.

To circumvent these problems, some scholars are turning to alternative mea-sures like the value of oil production per capita (Ross, 2008, 2012; Haber andMenaldo, 2010), global price shocks (Ramsay, 2011; Besley and Persson, 2011),and the discovery of large oil fields (Cotet and Tsui, 2013; Michaels, 2013), us-ing them either as instruments or direct measures of resource wealth. Othershave used data on oil reserves, oil depletion, or the number of drilling rigs inplace, although these data are both poorly measured and often endogenous tothe outcomes of interest (Laherrre, 2003; Tsui, 2011).

Resource curse skeptics suggest that any measures that are influenced bylocal decisions about resource extraction like the value of oil production, oilexports, oil revenues, or oil reserves might be endogenous to the outcomes wecare about, such as authoritarian rule, state weakness, or violent conflict. If anyof these maladies cause countries to either discover more oil, or extract theirexisting reserves more quickly, it could lead to biased estimates of the effects ofoil wealth, and create the misleading impression of a resource curse(Haber andMenaldo, 2010; Wacziarg, 2012).

Yet empirical studies consistently show that the opposite is true: bad polit-ical conditions lead to less oil exploration and production, not more. Bohn andDeacon (2000) demonstrate that countries with undemocratic institutions andendemic conflict tend to be poor investment risks for extractive firms; hencethese countries tend to have both less exploration and slower extraction rates, afinding consistently echoed by later studies (Metcalf and Wolfram, 2010; Poel-hekke and van der Ploeg, 2010; Cotet and Tsui, 2013; Cust and Harding, 2013).

The rich democracies have about ten times more foreign investment in alltypes of mining, per square kilometer, than either the developing world, orthe countries of the former Soviet Union (Ross, 2012). Thanks to these largerinvestments, recorded mineral assets are about 12 times greater per capita inthe high-income democracies than in the low-income countries (van der Ploeg,2011).

Hence oil discoveries, reserves, and production tend to be larger in countriesthat are more democratic, have better institutions, and are less conflict-prone.Without a resource curse we should observe less oil wealth, not more oil wealth,in politically-troubled countries.

3 Resource Wealth and DemocracyMany books and articles have analyzed the relationship between resource wealth,especially petroleum wealth, and government accountability. Most are broadly

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Figure 1: Oil and transitions to democracy 1960-2006.

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consistent with the claim that higher levels of oil wealth make autocratic gov-ernments more stable, and hence less likely to transit to democracy.

Figure 1 summarizes the global relationship between oil wealth and demo-cratic transitions. It shows all countries that, since 1960, could have madetransitions from authoritarianism to democracy including the 64 countriesthat were under authoritarian rule in 1960, plus the 50 countries that becameindependent after 1960 and were under authoritarian rule in their first yearof independence. The values on the horizontal axis represent each countrysmean oil income per capita between 1960 and 2010?; the values on the verticalaxis denote the percentage of the time (since either 1960 or their first year ofindependence) that these initially-authoritarian countries dwelt under a demo-cratic government. Those that were continuously authoritarian have a score of0, while those that transited to democracy early and stayed democratic havescores approaching 1.

As the pattern suggests, the greater a countrys oil income, the less likelyit has been to transition to democracy. Countries that transited to democracyearly, and remained democratic like the Dominican Republic, Turkey, Portu-gal and Spain had little or no oil. A handful of countries with modest oiland gas wealth, like Bolivia, Romania, and Mexico, had more recent (and some-times more erratic) transitions to democracy; but no country with more oil andgas income than Mexico has successfully become democratic since 1960. Mostcountries on the far right edge of the horizontal axis states with lots of oiland no democratic transitions are in the Middle East and North Africa; but

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the group also includes Russia, Angola, Gabon, Brunei and Malaysia. Even ifall thirteen of these oil-rich states are excluded, there remains a strong negativecorrelation between oil wealth and democratic transitions.

The connection between petroleum wealth and autocratic rule has long beendescribed by scholars of resource-rich countries, particularly in the Middle East(Mahdavy, 1970; Beblawi, 1987; Crystal, 1990; Bellin, 1994; Gause III, 1994;Yates, 1996; Chaudhry, 1997; Vandewalle, 1998). Early cross-national quanti-tative studies include Barro (1999) and Ross (2001a).

The core finding that more oil wealth is associated with less democracy hasbeen replicated many times, using better data and more sophisticated methods;recent studies report it is robust to the use of country fixed effects (Aslaksen,2010; Tsui, 2011; Andersen and Ross, 2014) and instrumental variables (Ram-say, 2011; Tsui, 2011). An extreme bounds analysis identified oil dependence asone of the few robust correlates of regime types (Gassebner, Lamla and Vree-land, 2012). A statistical meta-analysis of the oil-democracy question, whichintegrated the results of 29 studies and 246 empirical estimates, concluded thatoil had a negative, nontrivial, and robust effect on democracy (Ahmadov, 2013).

Much of this research has tried to clarify the conditions under which petroleumwealth has these anti-democratic effects. There are two broad possibilities: oilcould strengthen authoritarian governments and prevent them from transitingto democracy; and it could weaken democratic governments and push themtoward authoritarianism. Most studies of this issue find support for the firstcondition, but results are mixed on the second condition.

The first condition is also consistent with research on the survival in officeof authoritarian leaders, rather than authoritarian regimes. Both Cuaresma,Oberhofer, and Raschky (2010) and Andersen and Aslaksen (2013) show thatoil wealth lengthens the survival in office of authoritarian rulers; Andersen andAslaksen also find that kimberlite diamonds have a similar effect, while alluvialdiamonds and other types of minerals can reduce the longevity of authoritarianleaders and parties. Looking exclusively at African states, Omgba (2009) findsthat oil, but not other mineral resources, helps incumbents remain in office.Bueno De Mesquita and Smith (2010) report that natural resource rents helpauthoritarian leaders both avoid revolutionary threats, and survive them whenthey occur.

Several studies also report that oil makes autocracies more autocratic, byreducing media freedom (Egorov, Guriev and Sonin, 2009) and forestalling theemergence of an authoritarian legislature (Gandhi and Przeworski, 2007). Ac-cording to Wright et al. (2014), increases in oil wealth help autocratic regimesward off other autocratic challengers.

The impact of oil wealth on democracies is more ambiguous. One set of stud-ies reports that oil has pro-democratic effects in democracies, either by makingthe governments more stable (and hence less likely to become autocracies), or byimproving their democracy scores (Smith, 2004; Dunning, 2008; Morrison, 2009;Tsui, 2011).2 Hence Smith (2004) argues that oil might be better characterized

2Morrison (2009) does not focus on petroleum, but a broader class of non-tax revenues.

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as pro-regime stability than anti-democratic since it helps both autocraciesand democracies survive.

But a second group of studies finds no evidence that oil helps stabilize demo-cratic regimes (Ulfelder, 2007; Caselli and Tesei, 2011; Wiens, Poast and Clark,2011; Al-Ubaydli, 2012) or rulers (Andersen and Aslaksen, 2013). And a smaller,third group suggests that the effect of oil on democratic stability is conditional:it may stabilize democracies that are wealthy and have strong institutions, butfoster the breakdown of accountability in democracies that are poorer or haveweaker institutions, such as Russia or Venezuela in the early 2000s (Ross, 2012),or in sub-Saharan Africa (Jensen and Wantchekon, 2004).

New insights on this issue have emerged from sub-national studies in democ-racies and semi-democracies including the US (Goldberg, Wibbels and Mvukiyehe,2008; Wolfers, 2009), Brazil (Brollo et al., 2013; Monteiro and Ferraz, 2010), Ar-gentina (Gervasoni, 2010) and Iran (Mahdavi, 2013) all of which find that oilwindfalls (or in the Brollo et al. and Gervasoni studies, windfall-like federaltransfers) tend to lengthen the terms in office of elected local officials. TheBrazilian studies are particularly interesting: Brollo et al. found that windfall-like federal transfers that are plausibly exogenous to local conditions simulta-neously reduced the education levels of mayoral candidates, boosted re-electionrates, and increased the incidence of corruption detected by the federal govern-ments random audit program; Monteiro and Ferraz report that oil windfallsgave incumbents a strong re-election advantage, but only in the short-run.

All six subnational studies suggest that windfalls in democratic or semi-democratic settings have pro-incumbent effects; whether this should be seen asstabilizing democracy or undermining it is, in part, a matter of interpretation.

Researchers have also tried to identify further conditions among autocraciesthat either temper or exacerbate the effects of oil. Several studies argue thatmuch depends on a rulers ability to capture the available resource rents (Snyderand Bhavnani, 2005; Boschini, Pettersson and Roine, 2007; Greene, 2010). Ross(2012) makes a similar argument and places it in a historical context: it suggeststhat oil only gained strong anti-democratic powers in the late 1970s after mostoil-rich developing countries nationalized their petroleum industries, which gavepolitical leaders far greater access to the rents. It shows out that from 1960 to1979, oil states and non-oil states were equally likely to transit to democracy;after 1979, non-oil states were almost three times more likely to make democratictransitions.

Dunning (2008) argues for a different type of conditional influence: thatoil impedes democratization in countries with low levels of inequality, but has-tens democratization in countries with high inequality levels by alleviating theconcern of wealthy elites that democracy will lead to the expropriation of theirprivate assets. This is why, according to Dunning, oil had pro-democratic effectsin Latin America but anti-democratic effects in the rest of the world. Accordingto Smith (2007), the key intervening variable is the timing of the oil boom: ifit occurs before an authoritarian regime has developed a strong ruling party orcoalition, it is unlikely to create stability; if it arrives after the creation of astrong ruling party or coalition, it becomes more likely to foster authoritarian

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stability.Many studies dwell on the mechanisms that link more oil to less democracy.

Perhaps the most common argument is for the rentier effect: an abundant flowof oil revenues enables incumbents to both reduce taxes and increase patronageand public goods, making it possible for them to buy off a larger set of poten-tial challengers and reduce dissent (Mahdavy, 1970; Crystal, 1990; Ross, 2001a).An important assumption is that tax revenues and non-tax revenues have differ-ent effects on authoritarian stability: when undemocratic governments imposeheavier taxes (or reduce subsidies), they are often met with demands for greateraccountability; when they gain higher non-tax revenues, they face fewer de-mands (Bates and Lien, 1985; Ross, 2004a; Brautigam, Fjeldstad and Moore,2008).

Several studies have tested versions of the rentier mechanism with cross-national data. Morrison (2009) reports that non-tax revenue is associated withenhanced regime stability in both autocracies and democracies, but throughsomewhat different avenues: it leads to greater social spending in autocracies butthe reduced taxation of elites in democracies. According to Ross (2012), thereis statistical support for the rentier mechanism in the available cross-nationaldata, but the correlations are somewhat fragile, perhaps due to inaccurate andmissing data.

A handful of studies has scrutinized the rentier effect with subnational data.McGuirk (2013) uses micro-level survey data from 15 sub-Saharan countriesand finds strong within-country correlations between increased sums of naturalresource rents, decreases in the (perceived) enforcement of taxation, and declinesin the demand for democratic governance. One of the few field experiments onthe resource curse carried out by Paler (2013) with 1863 villagers in IndonesiasBlora district found that a taxation treatment led to increased monitoringof public officials, while a windfall treatment did not.

The rentier model assumes that resource wealth does not affect the pref-erences of rulers, only their fiscal capacity to act on these preferences. Analternative set of approaches explored formally by Robinson et al. (2006),Morrison (2007), and Caselli and Cunningham (2009), and informally by Fish(2005) suggests that resources affect the value that leaders place on remainingin office, rather than their capabilities. According to these models, the avail-ability of resource rents makes incumbency more valuable, inducing a ruler toinvest more on regime-preserving activities.

There are many additional theories that connect oil to either autocracy orincumbency: oil-rich autocrats may invest more heavily in repression (Ross,2001a; Cotet and Tsui, 2013); spend more on the military to keep it loyal ifan uprising should occur (2014); oil might give undemocratic leaders the for-eign support they need to fend off challengers (Rajan, 2011); the fixed qualityof mineral resources could make it harder for elites in authoritarian states totransfer their wealth abroad, which could lead them to more vigorously opposedemocratic reforms (Boix, 2003); or oil rents could spur immigration, which mayenhance the governments capacity to block democratic movements (Bearce andHutnick, 2011).

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There have been three types of challenges to the claim that oil prolongsautocracies.

The first comes from studies that test an alternative version of the resourcecurse. Claims about the effects of oil wealth typically focus on levels: higherlevels lead to more durable authoritarian regimes. Yet an equally interestingquestion is whether changes in levels of oil wealth lead to changes in levels ofdemocracy. There is no reason to assume that levels and changes have identicaleffects: for example, higher income levels tend to increase the likelihood ofa democratic transition, while positive changes in these levels (i.e., positiveeconomic growth) have the opposite effect (Treisman, 2013).

Several recent studies use statistical approaches that focus on changes in oilwealth; all report that these changes are uncorrelated with subsequent changesin democratic accountability (Haber and Menaldo, 2010; Wacziarg, 2012; Brck-ner, Ciccone and Tesei, 2012; Liou and Musgrave, 2013). Several interpret thesefindings as evidence that there is no resource curse. Yet subsequent studiesthat simultaneously model the effects of levels of oil wealth and changes in oilwealth suggest that both sides may be right: higher levels tend to hinder democ-racy, while short-term increases in these levels have no consistent effect (Wright,Frantz and Geddes, 2014; Andersen and Ross, 2014).

One way to reconcile these findings with the rest of the literature is to distin-guish between the short-term effects of oil (which are represented by changes)and the long-term effects (which are represented by levels). Temporary revenuewindfalls might make a dictator more popular in the short run, but be insuffi-cient to protect him from democratic forces when revenues fall; Monteiro andFerraz (2010), for example, found that municipal-level oil windfalls in Brazilhelped incumbents remain in power, but only through a single election cycle.Perhaps autocrats who wish to solidify their regimes need at least several yearsof high oil revenues to build durable and effective rent-distributing institutions.They might also need time to build up a revenue surplus in their stabilization orsovereign wealth funds, which will allow them to maintain support when theyface strong challengers a process modeled by Bueno de Mesquita and Smith(2010). If so, short-term revenue fluctuations would matter little, while levelsof oil revenues would matter a lot.

The second challenge to claims of an oil-autocracy link is causal identifi-cation: conceivably, the correlation between oil wealth and autocratic gover-nance might be endogenous or driven by omitted variables. Haber and Menaldo(2010), Gurses (2011), and Wacziarg (2012) all use this argument to explainwhy changes in oil income appear to have no effect on democracy.

Yet there are other ways to interpret these analyses. Andersen and Ross(2014) note that Haber and Menaldo decline to test the most widely-supportedversion of the resource curse hypothesis (e.g., that higher levels of oil revenueshelp autocracies stay in power); that they draw invalid inferences from theirlongitudinal data; and that they fail to account for changes over time in theglobal distribution of petroleum rents. According to Andersen and Ross, oilwealth only became a hindrance to democratic transitions after the expropri-ations of the 1970s, which enabled developing country governments to capture

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the oil rents that were previously siphoned off by foreign-owned firms. Theyshow that the Haber Menaldo statistical results which employ data that coverthe period 1800-2006 can be overturned by simply adding to the models adummy variable for the post-1980 period. Wright et al. (2014) confirm thisfinding, reporting that higher levels of oil wealth deterred democratic transi-tions between 1980 and 2007 but not between 1947 and 1979. It also shows thata critical piece of the Haber Menaldo analysis was biased by the use of a samplethat excluded 51 autocratic countries, including all of the oil-rich states thathave never made democratic transitions.

The final challenge is about the net impact of petroleum wealth: even if oilhas a negative direct effect on democratic transitions, this might be counterbal-anced by a positive indirect effect, brought about through the higher incomesthat oil wealth tends to bring. Herb (2005) first discussed this possibility andsuggested that these two effects may cancel each other out, leaving oil with nonet effect on democracy. Alexeev and Conrad (2009; 2011) address the sameproblem but use a different empirical strategy to estimate the size of the indi-rect effect; unlike Herb, they conclude that oils direct anti-democratic effectsare stronger than its indirect pro-democratic effects.

Resolving this issue is difficult because the impact of oil wealth on incomesis not straightforward; many argue it is conditional on other factors, like theex ante quality of the governments institutions (Melhum, Moene and Torvik,2006), the type of democratic institutions (Andersen and Aslaksen, 2008), open-ness to trade (Arezki and van der Ploeg, 2011), the level of human capital (Kurtzand Brooks, 2011), the survival function of political leaders (Caselli and Cun-ningham, 2009), or other factors (Torvik, 2009). Oil could also have otherindirect effects positive or negative that further complicate our ability todetermine its net impact.

In short, there is strong evidence that higher levels of oil wealth help author-itarian regimes, and authoritarian rulers, ward off democratic pressures. Theseeffects are commonly attributed to a rentier mechanism, although other mecha-nisms and conditions might also matter. Short-term revenue fluctuations seemto make little difference. While several studies have challenged these patterns,both a meta-analysis and an extreme-bounds test seem to confirm the robustnssof the oil-autocracy relationship. And even the models of skeptics like Haberand Menaldo seem to indicate the existence of a resource curse in the post-1979period.

4 Resources and InstitutionsThe second branch of the resource curse literature looks at the relationship be-tween resource wealth and the quality of institutions, meaning the effectivenessof the government bureaucracy, the incidence of corruption, the rule of law,and more broadly, the states capacity to promote economic development. Onceagain, petroleum is often associated with harmful outcomes, while other mineralresources are not. Most of this research falls in one of two categories.

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The first looks at the ways that institutional quality may condition theeffects of resource wealth on economic growth. Tornell and Lane (1999) de-velop a model showing how a state with weak institutions, upon receiving apositive fiscal shock (like a resource boom), may suffer from a voracity effectin which powerful groups compete for the windfall, leading ultimately to re-duced growth. Mehlum, Moene, and Torvik (2006) argue that the effects ofnatural resources on economic performance are conditional on the quality ofstate institutions: where institutions are grabber friendly (and more prone tocorruption), resource wealth tends to lower aggregate income; where they areproducer friendly (and less prone to corruption), it will raise aggregate income.Robinson et al. (2006) develop a parallel argument, suggesting that when insti-tutions are weak ex ante, resource booms will be dissipated through excessivepublic employment and patronage; but when they have institutions that fosteraccountable and competent governance, resource booms will be beneficial.

The second body of research asks whether natural resource wealth can dam-age, or stunt the beneficial evolution of, institutions themselves. Many studiesreport that oil wealth, or aggregated measures of resource wealth, are inverselycorrelated with measures of institutional quality (Bulte, Damania and Deacon,2005; Isham et al., 2005; Beck and Laeven, 2006; Knack, 2009; Anthonsen et al.,2012; Sala-i Martin and Subramanian, 2013). Wiens (2013) develops a formalmodel that brings together these two bodies of research, showing how bad in-stitutions can lead to a resource curse, which in turn causes these institutionsto persist.

There are many theories about how this could occur. High levels of resourcerevenues could, for example, forestall a states capacity to extract taxes from itscitizens, leaving the government weak, vulnerable to rent-seeking, and unableto develop sound economic policies (Beblawi, 1987; Chaudhry, 1989; Karl, 1997);discourage politicians from investing in the states bureaucratic capacity (Besleyand Persson, 2010); encourage lower-quality candidates to compete for publicoffice (Brollo et al., 2013); and induce politicians to dismantle well-functioninginstitutions that govern the use of natural resources, in order to gain accessto the rents (Ross, 2001b). The volatility of these revenues could shorten agovernments planning horizon and subvert major investments (Karl, 1997),while windfalls could cause a governments revenues to expand more quicklythan its capacity to efficiently manage them (Hertog, 2007; Ross, 2012).

Scholars have made special efforts to scrutinize the association between nat-ural resources and corruption. Several studies, using either cross-national orpanel regressions, find strong correlations between natural resource dependenceand perceptions of corruption (Leite and Weidmann, 1999; Arezki and Brck-ner, 2011; Sala-i Martin and Subramanian, 2013). To better measure corruption,Andersen et al. (2012) uses a unique dataset that tracks foreign deposits intothe banks of tax havens; it shows that when autocracies (but not democracies)experience a rise in oil and gas rents, there is a corresponding rise in transfersto these tax havens.

Subnational studies also find evidence of an oil-corruption link. Using house-hold surveys, Vicente (2010) reports that the discovery of oil in So Tom and

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Prncipe was followed by a large increase in perceived corruption across manypublic services. Brollo et al. (2013) employs a regression discontinuity designto identify the effects of transfers from the federal government in Brazil to mu-nicipal governments; it concludes that a 10 percent rise in these windfall-liketransfers are associated with a rise of 10 to 12 percentage points in the corrup-tion found by the federal governments random audit program. A second studyof Brazilian municipalities, by Caselli and Michaels (2013), found that plausiblyexogenous increases in oil revenues were associated with increased spending onpublic goods and services; yet much of this money went missing, and was mostlikely absorbed by a combination of increased patronage and embezzlement bytop officials.

The impact of resource wealth on institutions may also be conditional: bothAndersen et al. (2012) and Bhattacharya and Hodler (2010) offer evidence thatnatural resources only lead to greater corruption in non-democracies. Gov-ernment ownership might also be important: Luong and Weinthal (2010) studyfive petroleum-rich states of the former Soviet Union (Russia, Azerbaijan, Kaza-khstan, Turkmenistan, and Uzbekistan), and conclude that oil wealth only leadsto weakened state institutions when the government has a dominant role in thepetroleum industry; when the private sector and foreign investors have a moreprominent role, governments are likely to have stronger fiscal institutions.

Claims about oil wealth and institutions have faced the same two challengesas the rest of the resource curse literature: whether the observed correlationsare truly causal; and whether the direct, harmful effects of resource wealthare offset by indirect, beneficial ones. Busse and Grning (2013) focus on thefirst problem: using instrumental variables to address endogeneity and countryfixed effects to account for omitted variables, it reports that resource wealth isassociated with heightened corruption but not other indicators of institutionalquality.

Alexeev and Conrad (2009; 2011) focus on the second problem: the authorsreport that that once the countervailing effects of oil on income have been fullyaccounted for, the detrimental impact of resource wealth on most measuresof institutional quality disappears; only the perverse effects of oil wealth ondemocracy remain. Kennedy and Tiede (2013) also look at the problem ofnet effects, carrying out a type of extreme bounds analysis and employing 19indicators of institutional quality; they find little evidence that oil is harmful toinstitutional quality.

The relationship between resource wealth and institutional quality is ex-ceptionally hard to disentangle: institutions are often ambiguously defined andpoorly measured, and they could simultaneously affect, and be affected by, re-source wealth. These complications make it hard to know whether the corre-lation between oil wealth and low institutional quality is causal. Still, severalwell-designed studies show that resource windfalls have led to heightened cor-ruption at the sub-national level, suggesting that at least under some conditions,resource wealth can hurt government institutions.

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5 Resources and Civil WarThe third major branch of research looks at the effects of natural resourcewealth on civil war. In some ways it resembles the other branches: it brings to-gether cross-national quantitative work and qualitative, theoretically-informedcase studies (Collier and Sambanis, 2005; Kaldor, Karl and Said, 2007; Omeje,2008); most published studies identify a harmful effect, albeit a conditional one;and there is no consensus about the causal mechanisms.3

There are three important differences, however, between this and the othertwo branches. First, other kinds of natural resources seem to matter. Onlypetroleum is consistently correlated with less democracy and more corruption,but both petroleum and other mineral resources have been statistically asso-ciated with the onset or duration of civil war; these include alluvial diamonds(Ross, 2003, 2006; Lujala, Gleditsch and Gilmore, 2005), other alluvial gem-stones (Fearon, 2004), other non-fuel minerals (Collier, Hoeer and Rohner,2009; Sorens, 2011; Besley and Persson, 2011), and contraband goods like cocaleaves (Angrist and Kugler, 2008). The role of timber in several violent con-flicts has been explored at the case study level (Price, 2003; Harwell, Farah andBlundell, 2011). Still, the salience of nonfuel resources is far from settled: Ross(2006) notes that the correlation between alluvial diamonds and civil war isbased on a handful of conflicts from the 1990s and is statistically fragile.

The second difference is that the effects of resource wealth appear to be non-monotonic. The effects of oil wealth on authoritarian rule and corruption seemto be approximately linear: more petroleum leads to worse outcomes. But therelationship between natural resource wealth and the onset of violent conflictinstead resembles an inverted U: as the value of resource wealth increases, therisk of conflict first rises, then falls (Collier and Hoeer, 1998; Collier, Hoeerand Rohner, 2009; Basedau and Lay, 2009; Bjorvatn and Naghavi, 2011).4

Interpretations of this pattern vary, but most bear a close resemblance toCollier and Hoeers (1998) original argument: when resource wealth reachesvery high levels it becomes a stabilizing force, enabling the central governmentto either buy off or repress potential rebels.

The third difference is that the location of the resource matters. The like-lihood that resource wealth will trigger, prolong, or intensify a conflict seemsto depend on where, within a countrys boundaries, it is found. When studiesdo not take location into account, they sometimes fail to find meaningful cor-relations between oil and conflict (Cotet and Tsui, 2013; Bazzi and Blattman,2013).

When studies take location into account, however, the results are different:for example, when oil is found offshore, it has no robust effect on a countrysconflict risk; when it is onshore, it appears to have a large effect (Lujala, 2010;

3For earlier reviews of this literature, see Ross (2004b; 2006), Koubi et al. (2013) andCuvelier et al.(2013). There is also a separate body of research asking whether the scarcity ofrenewable resources can trigger violent conflict; see, for example, Gleditsch (2012) and Koubiet al. (2013).

4Not everyone agrees; see Humphreys (2005).

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Ross, 2012). The precise onshore location also makes a difference: oil is morelikely to spark conflict when it is found in regions that are poor relative to thenational average (stby, Nords and Rd, 2009) and populated by marginal-ized ethnic groups (Basedau and Richter, 2011; Hunziker and Cederman, 2012);when the resource is located in a region with a highly-concentrated ethnic group(Morelli and Rohner, 2010); when ethnic minority entrepreneurs use it to pro-mote collective resistance to the central government (Aspinall, 2007); and moregenerally, in countries that have high levels of ethnic fractionalization and po-larization.5 When conflicts take place near regions with petroleum or alluvialdiamond wealth, they also appear to last longer (Lujala, Gleditsch and Gilmore,2005; Buhaug, Gates and Lujala, 2009; Lujala, 2010), and become more severe(Weinstein, 2007; Lujala, 2009; De Luca et al., 2012).

Other conditions might also be germane: resource wealth may only heightenthe danger of civil war in non-democracies (Besley and Persson, 2011; Basedauand Richter, 2011); when rebel groups are credit-constrained (Janus, 2012); orin low and middle income countries, particularly since the 1980s (Ross, 2012).

The salience of location has made it easier for scholars to explore the rela-tionship between resources and conflict on a subnational level and employ moresatisfying identification strategies. One study found that during Sierra Leonescivil war, chiefdoms with diamond mines experienced more frequent attacks andbattles (Bellows and Miguel, 2009). A second study showed that global shocksto the price of tantalum were followed by increased violence in Africa near tan-talum mines (Miner, 2013). A third study, by Dube and Vargas (2013), usedmunicipal-level data from Colombia to estimate the effects of both coffee andpetroleum price shocks on the severity of rebel and paramilitary violence; itfound that coffee price shocks tend to reduce violence in the coffee-producingregions (perhaps by drawing labor out of the conflict and into the coffee sec-tor), while oil price shocks tend to boost violence in oil-rich regions (possiblyby creating more lucrative opportunities for predation). These latter findingsclosely match the implications of a model by Dal B and Dal B (2011) in whichexogenous shocks can raise or lower conflict risks, depending on whether theyoccur in labor intensive or capital intensive sectors.

It has also made it easier to distinguish among competing explanations forthe resource-conflict correlation. One class of theories suggests that naturalresource wealth leads to violence by affecting the government either makingit administratively weaker, and hence less able to prevent rebellions; or by in-creasing the value of capturing the state, and hence inducing new rebellions(de Soysa, 2002; Fearon and Laitin, 2003; Le Billon, 2005).

A second set of theories holds that natural resources lead to conflict byaffecting insurgents, not governments: rebels from an ethnically-marginalizedregion could be motivated by the prospect of establishing an independent state,so that locally-generated resource revenues would not be shared with the rest

5Some of these findings also apply to alluvial diamonds. All of these results appear to beconsistent with Esteban, Mayoral, and Ray (2012), which reports that resource wealth is morelikely to trigger conflict in countries characterized by heightened ethnic fractionalization andpolarization.

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of the country; or rebels could finance the costs of staging a rebellion by eitherlooting the resource itself or extorting money from companies and workers whooperate in their territory (Collier, Hoeer and Rohner, 2009; Dal B and DalB, 2011; Ross, 2012).

There is also a third set of theories, which focus on the interactions betweengovernments and rebels. The model developed by Besley and Persson (2011)suggests that resource rents increase the likelihood of conflict, conditional onthe inability of the state to facilitate peaceful transactions between groups.Fearons (2004) model of civil war duration suggests that resource-dependentgovernments cannot make credible commitments to redistribute resource wealthto local communities, since the volatility of resource prices causes the statesstrength to wax and wane; this makes it harder for them to reach peacefulagreements with insurgent groups, particularly when rebels can fund themselvesby capturing contraband.

If the first class of theories is right, then both onshore and offshore petroleumwealth should have the same conflict-inducing effects weakening the statesability to defend itself, or enlarging the size of its honeypot. If either the secondor third class is correct, oil should only lead to conflict when it is found onshore,where it can be claimed by local separatists, or attacked by cash-hungry rebels.Since only onshore oil is associated with higher conflict risks, the first approachappears to be wrong. Oil leads to civil war, at least in part, through its effectson insurgent groups. Both Glynn (2009) and Kennedy and Tiede (2013) alsoreport that the state weakness pathway cannot explain the link between oiland civil war.

Once again, several studies raise questions about whether resources-conflictcorrelation is truly causal, and whether the harmful effects of resource abun-dance are mitigated by the helpful ones. Brunnschweiler and Bulte (2009) ad-dresses both issues. Using the World Banks measure of total natural capitalstock to instrument for resource dependence, it finds no correlation with conflictonsets. Yet their instrument is only available for two years and 100 countries,and their approach has been challenged by Van der Ploeg and Poelhekke (2010).

Cotet and Tsui (2013) also instruments for resource wealth, using a uniquemeasure of oil discoveries, with much better coverage of countries and years;it reports that instrumented oil wealth is associated with conflict onsets in asimple pooled cross-sectional and time series setting, but loses significance inmost (although not all) specifications once country fixed effects are included.

By contrast, Lei and Michaels (2011) consider the effects of discovering giantoil fields, using models that include country and year fixed effects; it finds thesemajor oil discoveries increase the incidence of armed conflict by about 5 to 8percentage points, compared to a baseline probability of about 10 percentagepoints. In countries with recent histories of political violence, the effect is muchstronger.

The cross-national correlation between oil and civil conflict remains con-tested. Yet studies that incorporate sub-national data on the location of re-source deposits consistently report a strong link between oil (and sometimesother minerals) and conflict onsets particularly when they focus on low and

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middle income countries, and account for the U-shaped relationship first sug-gested by Collier and Hoeer (1998).

6 Looking AheadThere is considerable evidence to support three broad claims about the condi-tional effects of natural resource wealth: that higher levels of petroleum incomelead to more durable authoritarian rulers and regimes; that more petroleumincome increases the likelihood of certain types of government corruption; andthat moderately high levels of petroleum wealth, and possibly other types ofresource wealth, tend to trigger or sustain conflict when they are found in re-gions dominated by marginalized ethnic groups, particularly in low and middleincome countries.

It is standard practice in the social sciences to raise questions about thevalidity of causal claims that rely on observational data. It is also possible tospecify conditions under which a measure of resource wealth or for that matter,any independent variable loses statistical significance. Still, it is difficult tofind empirically-supported alternative explanations for the strong correlationsbetween more oil and less democracy, more corruption, and more civil conflict:without a resource curse we should observe less oil production, not more oilproduction, in politically-aicted states.

There are at least three sets of unsolved puzzles about the resource curse.The first is about the scope of the resource effect. Most researchers have fo-cused on the effects of resource wealth on either economic growth, or the threeoutcomes that are reviewed above; but a countrys natural resource base mightalso be affecting other dimensions of political and social life, like the status ofwomen (Assaad, 2004; Ross, 2008; Do, Levchenko and Raddatz, 2011), demo-graphic trends (Bearce and Hutnick, 2011), the spread of HIV/AIDS (de Soysaand Gizelis, 2013), international conflict and cooperation (Ross and Voeten,2012; Caselli, Rohner and Morelli, 2013; Colgan, 2013), and levels of govern-ment transparency (Egorov, Guriev and Sonin, 2009; Kolstad and Wiig, 2009;Williams, 2011).

Scholars who pursue these issues should be liberated from the narrow ques-tion of whether or not there is a curse. There are many interesting questionsabout the consequences of a countrys resource base, besides whether the regres-sion coefficient on a resource wealth variable carries a negative sign. Socialscientists who study the effects of other important phenomena like ethnic di-versity, or colonial legacies, or parliamentary institutions typically seek knowl-edge about the full range of outcomes, whether beneficial, detrimental, or noneof the above. The study of resource wealth should be equally broad-mindedabout what constitutes an interesting outcome.

A second set of puzzles concerns mechanisms and conditions. Many studiesoffer theories about the processes that link resources to different outcomes, orthe conditions under which they are most likely to occur. Yet few have tried todistinguish among these mechanisms and conditions to see which are valid and

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which are not.One way to gain leverage over this question would be to investigate why

different minerals appear to have different effects or more narrowly, whypetroleum appears to have certain effects while other minerals do not. Sinceminerals vary in many potentially-consequential ways for example, in theirphysical characteristics, the revenues they generate, the volatility of their mar-kets, the degree to which they are controlled by state-owned companies, andthe labor-intensity of their extraction processes these comparisons could helpresearchers develop more general theories that explain why different types ofresources, with different characteristics, lead to different outcomes.

The final set of puzzles is about what should be done. Many scholars havedeveloped ideas about policy interventions, including greater transparency, sta-bilization and savings funds, community participation, cash payments to citi-zens, and alternative tax and royalty systems (Humphreys, Sachs and Stiglitz,2007; Collier, 2010; Barma et al., 2011; Moss, 2012; Ross, 2012). We have lit-tle systematic knowledge, however, about which policies work and under whatconditions. A large number of low and middle income countries particularlyin Africa are striving to become oil or natural gas exporters in the next half-decade. The need for evidence-based policy advice is more urgent than everbefore.

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