THE CONDITIONAL EFFECT OF NATURAL RESOURCES ON INSTITUTIONS

We show empirically that natural resources do not always deteriorate the institutional quality in a country. Countries with a parliamentary systems are not affected by natural resources abundance. However, presidential systems undergo a nonlinear effect (inverse U-shaped) of natural resources on institutions. For small amounts of natural resources rents, institutions provide sufficient incentives to prevent the establishment of institutions of poor quality oriented to the extration of the rents. However, if institutions do not provide sufficient incentives, we observe an institutional quality deterioration. This effect appears only in presidential systems. The results still hold if we consider only a sample of democratic countries.