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Natural resources, decentralization, and risk sharing: can resource booms unify nations?

Pérez-Sebastián, Fidel; Raveh, Ohad

Authors

Ohad Raveh



Abstract

Previous studies imply that a positive regional fiscal shock, such as a resource boom, strengthens the desire for separation. In this paper we present a new and opposite perspective. We construct a model of endogenous fiscal decentralization that builds on two key notions: a trade-off between risk sharing and heterogeneity, and a positive association between resource booms and risk. The model shows that a resource windfall causes the nation to centralize as a mechanism to either share risk and/or prevent local capture, depending on the relative bargaining power of the central and regional governments. We provide cross country empirical evidence for the main hypotheses, finding that resource booms: (i) decrease the level of fiscal decentralization with no U-shaped patterns, (ii) cause the former due to risk sharing incentives primarily when regional governments are relatively strong, and (iii) have no effect on political decentralization.

Journal Article Type Article
Publication Date 2016-07
Journal Journal of development economics
Print ISSN 0304-3878
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 121
Pages 38-55
APA6 Citation Pérez-Sebastián, F., & Raveh, O. (2016). Natural resources, decentralization, and risk sharing: can resource booms unify nations?. Journal of Development Economics, 121, 38-55. https://doi.org/10.1016/j.jdeveco.2016.02.003
DOI https://doi.org/10.1016/j.jdeveco.2016.02.003
Keywords Natural resources; Decentralization; Bargaining power; Risk sharing; Secession
Publisher URL http://www.sciencedirect.com/science/article/pii/S030438781630013X
Copyright Statement ©2018, Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Additional Information Authors' accepted manuscript of article published in: Journal of development economics, 2016, v.121.

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Copyright Statement
©2018, Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/





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