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Stochastic petropolitics: The dynamics of institutions in resource-dependent economies

Abstract : We investigate the link between resource revenues volatility and institutions. We build a stochastic differential game with two players (conservatives vs. liberals) lobbying for changing the institutions in their preferred directions. First, uncertainty surrounds the dynamics of institutions and the resource revenues. Second, the lobbying power is asymmetric, the conservatives’ power being increasing with resource revenues. We show the existence of a unique equilibrium in the set of affine strategies. We then examine to which extent uncertainty leads to more liberal institutions in the long run, compared to the deterministic case. We finally explore the institutional impact of volatility using a database covering 91 countries over the period 1973–2005. Focusing on financial liberalization, we find that as oil revenue volatility increases, liberalization goes down. This result is robust to different specifications and sample distinctions.
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https://hal.inrae.fr/hal-03040157
Contributor : Laurent Garnier <>
Submitted on : Friday, December 4, 2020 - 11:05:35 AM
Last modification on : Monday, March 29, 2021 - 2:46:29 PM

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Raouf Boucekkine, Fabien Prieur, Chrysovalantis Vasilakis, Benteng Zou. Stochastic petropolitics: The dynamics of institutions in resource-dependent economies. European Economic Review, Elsevier, 2021, 131, pp.103610. ⟨10.1016/j.euroecorev.2020.103610⟩. ⟨hal-03040157⟩

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