ECONOMIC GROWTH CENTER
                                
                        YALE UNIVERSITY
                                
                                
                        P.O. Box 208269
                      27 Hillhouse Avenue
               New Haven, Connecticut 06520-8269
                                
                                
                                
                                
                CENTER DISCUSSION PAPER NO. 795
                                
                                
                                
                                
           DICTATORSHIPS AS A POLITICAL DUTCH DISEASE
                                
                                
                                
                                
                                
                                
                           Ricky Lam
                       Leonard Wantchekon
                                
                        Yale University
                                
                                
                                
                                
                          January 1999

     




 Note: Center Discussion Papers are preliminary materials circulated to stimulate discussions and
       critical comments.
                    



                       DICTATORSHIPS AS A
                                
                    POLITICAL DUTCH DISEASE
                                
                                
                                
                Ricky Lam and Leonard Wantchekon
                        Yale University
                                
                                
                        January 19, 1999
                                
                                
                                
                                
                            Abstract

     We present a model to explain why natural resource windfalls tend not only to lead to slower
economic growth but to generate and reinforce authoritarian tendencies in Third World political
regimes.  In the model, the political elite's power over the populace is derived both from its own
wealth and its control over the process of rent distribution among members of the populace
(distributive influence).  We show that resource windfalls enhance the elite's distributive influence. 
An increase in the elite's distributive influence generates hegemonic political regimes and exacerbates
the decline of the economy.  We present wide-ranging empirical evidence to support our theoretical
insights.  In particular, we find the size of the natural resource sector, measured by the ratio of
primary exports to GDP, to be a far more significant predictor of the nature of political regimes than
the level of GDP, education, or income inequality.

Keywords: Dutch Disease, Rent-seeking, Influence Activities, Political Regimes.

J.E.L. classification: O13, P16, Q32