Natural resources and the formation of institutional arrangements in developing economies

Abstract

Oil producing developing countries are always at the risk of becoming the next example of the resource curse phenomenon. Numerous studies agree that the resource curse is not deterministic but can be avoided as a number of countries have managed to develop their economies using oil revenues. One of the factors affecting the performance of oil producing countries is the capable institutions that a particular country develops. It is this element that is examined in this study. The aim is to determine to what extent institutional development is affected by the oil industry.The study was done by using existing secondary data on the historical formation of institutions and institutional reforms in the oil industry. A mixed research study was conducted, utilizing the content analysis method as well as the correlation method to establish a relationship between factors.The main finding of the research is that the historical context of institutions is crucial to the understanding oil industry policies and that governments are not influenced by the size of the proven oil resource but rather that the oil rents governments are able to collect from the oil industry are determined by the bargaining power they have in relation to all other stakeholders.