Munich Personal RePEc Archive

Price volatility and the political economy of resource-rich nations

Ahmed Saber, Mahmud and Syed Abul, Basher (2014): Price volatility and the political economy of resource-rich nations.

[img]
Preview
PDF
MPRA_paper_56564.pdf

Download (254kB) | Preview

Abstract

This paper attempts to understand how price volatility affects the political transition of a resource-rich nation. Two states reflect price volatility: 'high prices' and 'low prices'. We argue that whether or not political transition (i.e., a switch from one regime to another) will take place in a particular state depends critically on the kind of goods a country produces. If the main economic activity in a country is the extraction of "point-source" resources such as oil that demands capital-intensive production, the opportunity cost of switching the existing regime does not alter if the price of the resource changes but the benefit becomes more lucrative. Therefore, the incumbent group is most vulnerable during 'high prices'. If the main economic activity of the nations is the production of "diffused resources" that requires labor such as coffee, prices do affect the opportunity cost. Nations concentrating in these commodities, face acute political crisis during downturns.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.