Sarr, Mare, Erwin Hendricus Bulte, Chris Meissner and Tim Swanson. 2011. “On the Looting of Nations.” Public Choice 148: 353-380.
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We develop a dynamic discrete choice model of a self-interested and unchecked ruler making decisions regarding the development of are source rich country. Resource wealth serves as collateral and facilitates the acquisition of loans.
The ruler makes the recursive choice of either staying in power to live off the productivity of the country while facing the risk of being ousted, or looting the country's riches by liquefying the natural assets through external lending. The ruler is able to balance risk and return by means of siphoning returns from the economy into an offshore store of value,accessible upon any form of departure. We show in a simple model of looting that 1) unstructured lending from international credit market scan enhance the autocrat's incentives to loot the country's resource wealth; and then demonstrate that 2) an enhanced likelihood of looting within an economy reduces tenures (greater political instability), increases indebtedness, reduces investment, and diminishes growth potential. We test these predictions with the data and find strong empirical evidence that instability caused by unsound lending to unchecked rulers of resource rich countries may result in a negative shock to economic growth.
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Swanson, Tim
- Other authors:
Sarr, Mare
Hendricus Bulte, Erwin
Meissner, Chris
Authors
- South Africa
Center of origin
- Policy Design