The Natural Resource Curse, Fiscal Decentralization, and Agglomeration Economies

OxCarre WP: Natural resource abundance is a blessing for some countries, but a curse for others. We show that differences across countries in the degree of fiscal decentralization can contribute to this divergent outcome. First, the paper presents a unified theory that combines political and market mechanisms to illustrate why natural resource booms can create negative effects in fiscally decentralized nations. Thereafter, we employ Sachs and Warner’s cross-sectional data, and also construct a new panel-data sample to test the hypothesis. Results support the joint effect of the two variables.