On the Political Economy of Resource Rents in Polarized Societies

The present paper analyses how resource rents may affect political outcomes in a polarized society, where groups hold conflicting views on economic policy. A politically dominant group decides whether or not to include the opposition in the national political process. The weaker group chooses whether to remain in the union or secede. The analysis finds that the effect of resource rents on social and political outcomes depends on the social environment, in particular the degree of polarization in society. Moreover, the study shows that this relationship may be non-monotonic, with increases in resource wealth stimulating peaceful cooperation for some initial levels of wealth, and stimulating conflict and division for other initial levels of wealth