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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.

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

Journal Article Type Article
Acceptance Date Feb 13, 2016
Online Publication Date Mar 14, 2016
Publication Date 2016-07
Deposit Date Feb 23, 2016
Publicly Available Date Mar 14, 2018
Journal Journal of development economics
Print ISSN 0304-3878
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 121
Pages 38-55
DOI https://doi.org/10.1016/j.jdeveco.2016.02.003
Keywords Natural resources; Decentralization; Bargaining power; Risk sharing; Secession
Public URL https://hull-repository.worktribe.com/output/411111
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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