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Does Oil Wealth Affect Democracy in Africa?
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ABSTRACT
Understanding the effect of oil wealth on
democracy is important. National
democratic institutions provide a check on
governmental power and thereby limit the
potential of public officials to amass
personal wealth and to carry out unpopular
policies. Democracy promotion has thus
been at the top of the US and West
European foreign policy agenda since the
end of the Cold War. Recently rising coups
d’états attempts and oil discoveries in some
African countries, high energy prices and
the North African and Middle East situation
characterized by revolutions have made the
question of the link between oil wealth and
democracy timelier than ever. This paper
uses recent data on historical oil wealth to
provide new evidence on the effect of oil
wealth on democracy in Africa from 1955 to
2008. We find that oil wealth is statistically
associated with a lower likelihood of
democratization when we estimate the
relationship in a pooled cross-sectional and
time-series setting. In addition, when estimated using fixed effects, the strong
negative statistical association continues to
hold. Indeed, this result is robust to the
source of oil wealth data, the choice and
treatment of the variables set, and the
sample selection. Our results also show
other interesting and important results. The
cross-country evidence examined in the
study confirms that the
“Lipset/Aristotle/modernization hypothesis”
(that prosperity stimulates democracy) is a
strong empirical regularity. Also, the
propensity for democracy rises with
population size, population density, ethnic
fractionalization, having British legal origin
or colonial heritage, and having a
supportive institutional environment in the
form of maintenance of the rule of law.
However, apart from oil wealth, democracy
tends to fall with linguistic fractionalization
and rough (mountainous) terrain.
Moreover, consistent with the data, North
Africa consistently fails to favor democratic
development.



Introduction
Oil wealth can be a political curse when oil-rich dictators oppose democratic development because they
will have more to give up from losing power. In Africa, many of the poorest and most troubled states
have, paradoxically, high levels of natural resource wealth. Most of these countries are oil producers
and have become what the literature calls "rentier states," because a great portion of their national
wealth comes from the export of oil and a few political elite collects the revenues from the oil export
and use the money for cementing their political, economic and social power by controlling government
and its bureaucracy. Thus, there is a growing body of evidence that resource wealth itself may harm a
country's prospects for democracy. Oil is not the main reason for the lack of democracy in resourcerich
states in Africa. Many factors – economic, cultural and political tradition, religion, geography,
colonial past and others - impede development of democracy and democratic institutions. While it is
clear that democracy is always a result of these different factors, it is interesting to find out how
important the abundance of oil wealth is for democratic development in Africa.
Understanding the effect of oil wealth and democracy is important. Democratic institutions provide a
check on governmental power and thereby limit the potential of public officials to amass personal
wealth and to carry out unpopular policies. Democracy promotion has thus been at the top of the US
and West European foreign policy agenda since the end of the Cold War. Recently rising coups
attempts in some African countries, high energy prices and the North African and Middle East situation
characterized by revolutions have made the question of the link between oil wealth and democracy
timelier than ever. Indeed, the recent wave of “revolutions” and “counter revolutionary” attempts in
North Africa and the Middle East has not only been important political events, they have also resparked
old academic debates on democracy and oil wealth.
In addition, less than half of the world population is living under total or partial democracies. But in
Africa, only nine of the 53 countries are at best flawed democracies while 31 of them are authoritarian
regimes. Because democratic institutions, which provide checks and balances on elected officials, are
prone to reduce corruption (see, for example, Bhattacharyya and Haodler, 2010), improving political
institutions may be an effective tool in the global fight against corruption in developing countries.
This paper uses recent data on historical oil explorations, discoveries and extraction to provide new
evidence on the effect of oil wealth on democracy in Africa from 1955 to 2008. The dependent variable
“democracy” is taken from the Polity IV dataset. It contains coded annual information on regime and
authority characteristics for all independent states (with greater than 500,000 total population) in the
world. It is calculated from the polity2 index as a measure of democracy, normalized it to a 0–1 scale,
with 1 being the most democratic. This variable is a composite indicator constructed to reflect the
competitiveness and openness of political executive recruitment, constraints on the chief executive, and
the regulation and competitiveness of political participation.
Thus, the further contents of the paper can therefore be adumbrated as follows. Section II presents some
stylized facts on oil reserves and democratic development in recent years while Section III examines a
brief literature review. Section IV presents the model and descriptive statistics while Section V presents
and discusses the empirical estimates. Section VI concludes the paper with policy implications.



Trend in Democratic Development
As Sorensen (1993) puts it, democracy focuses on political arrangements and participation, that is,
institutions and processes that guarantee the rights and freedoms to choose and replace leaders through
regular and free elections, equality of opportunity and access, and a just distribution of social benefits
and burdens are maintained.
Democracy can be generally conceptualized in two ways: electoral democracy and liberal democracy.
With the former conceptualization, a country is democratic if there are free and open elections. With
respect to the second conceptualization, a democracy is seen through political freedom (in elections,
transparency of the government and political participation) and civil liberties (freedom of speech, union
rights and rule of law). It is not surprising that this form is characterized as a more substantial type of
democracy. This is because in a liberal democracy, elected officials have power as well as authority,
and the military and police are subordinate to them. The rule of law is upheld by an independent and
respected judiciary. As a result, citizens have political and legal equality, state officials are themselves
subject to the law, and individual and group liberties are respected. People are free to organize,
demonstrate, publish, petition, and speak their minds. Print and electronic media are free to report and
comment, and to expose wrongdoing. Minority groups can practice their culture, their faith, and their
beliefs without fear of victimization. Executive power is constrained by other governmental actors.



The Brief Review Of The Literature
One of the natural “resource curse” arguments in the literature is that oil-rich countries tend to adopt
less democratic ways of governance. Ross (2001, 2008) argues that there are three mechanisms that ties
oil wealth to authoritarianism: a “rentier effect” (‘taxation effect” and “spending effect”, through which
governments use low tax rates and high spending to dampen pressures for democracy; a “repression
effect”, by which governments build up their internal security forces; and a “modernization effect”, in
which the failure of the population to undergo certain social changes renders them less likely to push
-
Africa Sub-Saharan Africa North Africa World
14
for democracy. More recently, others have suggested alternative mechanisms: Fish (2005) faults
corruption; Box (2003) points to asset specificity; and others emphasize international factors.
The “taxation effect” suggests that when governments derive sufficient revenues from oil, they are
likely to tax their populations less heavily. In turn, the population will be less likely to demand
accountability from, and representation in, the government. The argument on the “spending effect” is
that oil wealth may lead to greater spending on patronage, which dampens latent pressures for
democratization. Citizens in oil-rich states may want democracy as much as citizens elsewhere, but oil
wealth may allow their governments to spend more on internal security and militarization and so block
the populations democratic aspirations, sometimes resulting in "rentier absolutist states". As Cotet and
Tsui (2011) show, oil-rich non-democratic countries have significantly higher military expenditures.
According to the “modernization effect” or the “group formation effect”, the government will use the
oil largesse to prevent the formation of social groups which are independent from the state and hence
which may be inclined to demand political rights from the government. In the latter case, oil inhibits
democratization by retarding certain social changes that tend to produce more accountable government.
The modernization argument draws on the work of earlier scholars – most importantly Inglehart
(1997), but also Lipset (1959) and Deutsch (1961) – who suggest that democratization comes about
when a society is transformed by higher education levels, urbanization, the development of modern
communications, and greater occupational specialization. If oil wealth inhibits these social changes, it
could also impede the democratization process.
Fish (2005) also argues that corruption can help explain the connection between oil wealth and the
absence of political freedom. Massive official malfeasance reduces popular demand for democracy but
also undermines elites’ interest in democracy: the more corrupt the public official, the greater his or her
interest in avoiding public scrutiny and thwarting popular control of politics. While oil wealth
strengthens authoritarian regimes through a domestic mechanism, perhaps foreign influence also plays
a role. It is argued that that oil-rich governments are less accountable to their citizens because they
receive exceptionally strong backing from foreign powers. To assure a steady flow of hydrocarbons,
oil-importing governments may use their influence to help friendly autocrats stay in power – either by
intervening on their behalf or by augmenting their military and police forces through arms transfers and
training, enhancing their ability to ward off popular uprisings and military coups.
Thus, the argument suggests that it is the massive, easily appropriated profit from oil that provides
greater incentives for dictators to monopolize the state. These have led to “oil hinders democracy”
literature, which dates back to the contribution on rentier states and oil in Iran by Mahdavy (1970) and
Luciani (1987). Drawing on the rentier state theory, the •political resource curse•literature argues that
oil wealth entrenches autocracy and hinders democracy (Anderson, 1987; Beblawi and Luciani, 1987;
Ross, 2001; Jensen and Wantchekon, 2004). Mulligan and Tsui (2008) and Tsui (2010) show that
lucrative oil reserves provide strong incentives for greedy dictators to remain in power – and they use
fear to deter their greedy political opponents.
Thus, empirical results that support the “oil-hurts-democracy” thesis include Barro (1999), Ross
(2001), Jensen and Wantchekon (2004), Smith (2004), Tsui (2011) and Aslaksen (2010). In a revisitation
of the evidence, Ross (2009) finds that oil wealth strongly inhibits democratic transitions in
15
authoritarian states; oil’s anti-democratic effects seem to vary over time and across regions, and they
have grown stronger over time, but do not hold in Latin America.
Additionally, Caselli (2006) develops a model of the natural resource curse which predicts a negative
relationship between resource income and political survival. The model’s essential idea is that natural
resource wealth is more easily appropriated by the governing elites than are other sources of wealth. As
a result, countries with large natural resource endowments experience frequent power struggles, in the
sense that potential challengers have a stronger incentive to replace the existing government by staging
a coup or engaging in other forms of forced leadership changes. Hence, in countries with large amounts
of natural resources, there will be a greater probability that the government will lose power to
challengers.
The results from Tsui’s (2011) panel data analysis suggest a conditional natural resource curse. Despite
the conditional effect, Tsui concludes by supporting the claim that “richness in natural resources leads
to negative economic and political outcomes”. In a regression analysis of time-series cross-section data
on 18 Latin American countries, Dunning (2008) finds that oil wealth is positively and significantly
linked to democracy. Tsui 2011) uses detailed industrial data on the history of worldwide oil
discoveries to provide new evidence for the long-term significant negative effect of oil wealth on
democracy. Using meta-regression analysis, Ahmadov (2013) finds a nontrivial negative association
between oil and democracy across the globe, with a notable variation in this relationship across world
regions and institutional contexts.
Its critics contend that this negative association is far from conclusive. Some claim that it is
circumscribed to specific instances or geographic areas, such as the Middle East and North Africa
(MENA) (Herb, 2005). Oskarsson and Ottosen (2010) argue that there can be a temporal variation in
the strength and direction of the relationship. Others argue that oil may not hinder democracy and can
even be a blessing in other geographic regions, such as Latin America (Smith and Kraus, 2005;
Dunning, 2008), or across regions (Gurses, 2009; Haber and Menaldo, 2011). The claim that oil wealth
tends to block democratic transitions has recently been challenged by Haber and Menaldo (2011), who
use historical data going back to 1800 and conclude there is no “resource curse.” They thus confirm the
results of Gurses (2009). However, Andersen and Ross (2012) revisit Haber and Menaldo data and
models, and show they might be correct for the period before the 1970s, but since about 1980 there has
been a pronounced resource curse. They argue that oil wealth only became a hindrance to democratic
transitions after the transformative events of the 1970s, which enabled developing country governments
to capture the oil rents that were previously siphoned off by foreign-owned firms. They also explain
why the Haber-Menaldo study failed to identify this: partly because the authors draw invalid inferences
from their data; and partly because they assume that the relationship between oil wealth and democracy
has not changed for the last 200 years.
Dunning (2008) argues that some Latin American countries such as Venezuela have experienced an
increase in democracy when crude prices rise. Dunning argues that the positive relationship has to do
with a political bargain between the elite and society, particularly the role of minimal taxes on the elite
in non-oil sectors and increased spending by the government on social programs. Brooks and Kurtz
(2012), using global data from 1960-2009, conclude that oil wealth is not necessarily a curse, and may
even be a ‘blessing’ with respect to democratic development. Still others find that political regime
dynamics are determined by factors other than oil wealth (Horiuchi and Wagle, 2008). Other
16
contributions that do not find empirical support for the oil/natural resource hurts democracy thesis
include Alexeev and Conrad (2009), Ulfelder (2007), Brunnshweiler and Bulte (2008) and Horiuchi
and Wagl´e (2008).
Apart from oil wealth, other variables have been identified in the literature for influencing democracy.
The “modernization theory” of democratization posits that increases in income are conducive to
increases in democracy levels, that is, democratic regimes are created and consolidated in affluent
societies (e.g. Lipset, 1959; Przeworski et al, 1997; Barro, 1999; Epstein et al, 2006). This is because
higher incomes reduce the intensity of conflict over the distribution of income, and thereby give way to
democratic institutions that discourage expropriation and support redistributive fiscal policies under the
rule of law (e.g. Benhabib and Rustichini, 1996; Benhabib and Przeworski, 2006). Alternatively,
citizens of wealthier countries with high levels of human capital and high incomes may be more
effective at creating and sustaining democratic institutions (e.g. Glaeser, et al, 2004). However, papers
by Acemoglu, et al (2008, (2009) cast doubt on the robustness of the cross-country empirical
relationship between income and democracy. Using Freedom House and Polity measures of democracy
in a cross-country panel between 1960 and 2000 as well as a binary democracy measure used by
Przeworski, et al (2000), these authors find no statistically significant effect of income on democracy.
However, more recently, Benhabib, Corvalan and Spiegel (2011) find a robust statistically significant
positive income-democracy relationship. Gundlach and Paldam (2009) found that income explains the
long-term political regime. Economic development as represented by per capita income can lead
citizens to ask for institutional changes suitable for investments.
This akin to “Lipset hypothesis”. A common view since Lipset’s (1959) research is that prosperity
stimulates democracy; this idea is often called the Lipset hypothesis. Lipset credits the idea to Aristotle:
‘‘From Aristotle down to the present, men have argued that only in a wealthy society in which
relatively few citizens lived in real poverty could a situation exist in which the mass of the population
could intelligently participate in politics and could develop the self-restraint necessary to avoid
succumbing to the appeals of irresponsible demagogues’’ (p. 75). Despite the lack of clear predictions
from theoretical models, the cross-country evidence examined in the present study confirms that the
Lipset/Aristotle hypothesis is a strong empirical regularity. In particular, increases in various measures
of the standard of living forecast a gradual rise in democracy. In contrast, democracies that arise
without prior economic development—sometimes because they are imposed by former colonial powers
or international organizations—tend not to last. Given the strength of this empirical regularity, one
would think that clear-cut theoretical analyses ought also to be attainable.
Using a panel of over 100 countries from 1960 to 1995, Barro (1999) finds the propensity for
democracy rises with per capita GDP, primary schooling, and a smaller gap between male and female
primary attainment. Also, for a given standard of living, democracy tends to fall with urbanization and
with a greater reliance on natural resources (oil country dummy). Democracy has little relation to
country size but rises with the middle-class share of income. In addition, the apparently strong relation
of democracy to colonial heritage mostly disappears when the economic variables are held constant. In
the same vein, allowance for economic variables weakens the interplay between democracy and
religious affiliation though the negative effects from Muslim and non–religious affiliations remain intact.



Fiorino and Ricciuti (2007) investigate the demographic (population size and population density),
economic, political and cultural determinants of direct democracy in 87 countries using an index of
direct democracy. They find that per capita income, education and a larger share of Catholic population
are positive determinants, whereas ethnic fractionalization is depending on the estimation technique. In
addition, political rights and stability also work as prerequisites to direct democracy while direct
democracy seems independent from the institutional structure.
The ethnological fractionalization of a country, including ethnicity, religion, and language can be
important determinants of democracy. Barro (1999) opines that the more heterogeneous a country, the
more difficult is it to sustain democracy. Besides the impact of single religions, the religious
composition of a country might also play a role. According to Przeworski et al (2000), in religious
heterogeneous countries political systems are less stable. Indeed, ethnic fragmentation is shown to
affect political regimes (see, for example, La Porta et al., 1999). Riding on the lack of cultural and
ethnic cohesion, elites in heterogeneous societies are likely to maintain their political power and to
avoid institutional reforms (Alesina et al., 2003; Aghion et al., 2004).
According to Lipset (1959), the British rule during the colonial time provided crucial learning
experience for subsequent democracy. Similar positive impact has been argued by Bollen and Jackman
(1985) as well as Przeworski et al (2000). This is because the British introduced reforms that facilitated
the way towards democracy, including bureaucratic structures or the rule of law (Rueschemeyer et al,
1992; Iqbal, 2012). In a number of papers Shleifer with his co-authors has argued that legal origins
have an impact on institutions and therefore on outcomes (Glaeser and Shleifer, 2002). Legal origins
affect judicial independence and this has an effect on the protection of property rights; legal origins
influence the regulation of entry and this affect corruption (Djankov et al., 2002); the quality of
government and political rights impinge on the legal origins (La Porta et al., 1999).
 


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