What resource curse? The null effect of remittances on public good provision
| Author | Desiree A Desierto |
| Published date | 01 October 2018 |
| DOI | 10.1177/0951629818791033 |
| Date | 01 October 2018 |
| Subject Matter | Articles |
Article
Journal of Theoretical Politics
2018, Vol.30(4) 431–450
ÓThe Author(s) 2018
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/0951629818791033
journals.sagepub.com/home/jtp
What resource curse? The
null effect of remittances on
public good provision
Desiree A Desierto
Stanford University and Universityof Wisconsin-Madison, USA
Abstract
Existing formal models show that remittances generate a resource curse by allowing the govern-
ment to appropriate its revenues toward rents, rather than public good provision. Households
spend their remittance income on public-good substitutes, thereby alleviating the pressure on the
government to provide public goods. However, the process by which the government survives
the implicit threat of political challengers remainsunspecified. By explicitly modeling political com-
petition, I show that there is actually no resource curse from remittances. When there are chal-
lengers who can threaten to replace the incumbent leader, the best that any challenger can do is
to offer not to take advantage of households’ provision of public-good substitutes, which induces
the incumbent to try to match the offer. In equilibrium, public good provision is independent of
remittances. This result holds even when no challenger can credibly commit to maintaining her
offer once she is in power.
Keywords
Remittances; rent-seeking; resource curse
1. Introduction
Do remittances generate a political resource curse? While many papers have shown
that such a curse exists for oil and natural resources, and even foreign aid and for-
eign direct investment, a fairly recent debate centers on whether the same effect
might also be induced by remittance flows. Does the windfall from remittance
Corresponding author:
Desiree A Desierto, WSDHanda Center for Human Rights and International Justice, StanfordUniversity, 417
Galvez Mall Encina Hall West, Suite 216, Stanford,CA 94305-6045, USA.
Email: desierto@wisc.edu
incomes allow rent-seeking by governments at the expense of public good
provision?
Abdih et al. (2012) use a cross-section of 111 countries to show that a higher
ratio of remittances to gross domestic product increases corruption, as measured
by World Bank governance indicators. They estimate the effect of remittances by
adding the remittance ratio in the set of regressors that La Porta et al. (1999) have
used to explain corruption. Berdiev et al. (2013) extend the data by constructing a
panel over the period 1986–2010, and estimating a dynamic panel where past cor-
ruption is included as regressor. Their results also show that remittances increase
corruption, with the effect more pronounced in non- Organization for Economic
Co-operation and Development countries.
Ahmed (2012) provides related evidence by showing that remittances (and for-
eign aid) reduce the likelihood of government turnover and regime collapse in auto-
cracies. The idea is that remittances induce higher patronage, rather than public
good provision, which is ostensive in autocratic regimes since they rely heavily on
patronage for political survival. Tyburski (2014) also moderates the effect of remit-
tances by regime type. Using panel data from 127 developing countries over the
period 2000–2010, he estimates a hiearchical linear model and shows that remit-
tances increase corruption in autocratic countries, while such effect is mitigated in
democracies.
The mechanism underlying such results – formalized in both Ahmed (2012) and
in Abdih et al. (2012), follows the logic of the Stackelberg duopoly game.
Households use their remittance incomes to purchase public-good substitutes,
which then allows the government, as first-mover in the game, to decrease its own
provision of public goods. With less spent on public goods, more government rev-
enues can then be transferred to political patrons.
Many empirical papers have indeed shown that households use remittance
incomes to increase not only consumption but also investments in, for example,
education, health, and entrepreneurial activities (see, for instance, Adams and
Page, 2005; Aggarwal et al., 2006; Djajic
´, 1986; Giuliano and Ruiz-Arranz, 2005;
Kapur and McHale, 2005; McCormic and Wahba, 2000; Ratha, 2013). Using
Hirschman’s (1970) terminology of ‘exit’ and ‘voice,’Tyburski (2012) inteprets this
as a kind of exit option from the government that individuals can take.
1
At first glance, it seems plausible that the empirical fact that households pur-
chase public-good substitutes on their own couldmake the government less accoun-
table and enable it to spend less government revenues on public goods and more on
patronage. However, none of the aforementioned papers empirically test this
(Stackelberg) mechanism. Ahmed (2012) and Abdih et al’s (2012) empiricalfindings
do not even show that the goverment actually lowers public good provision. To my
best knowledge, there exists no evidence that remittances increase patronage and
decrease public good provision because the government is able to free-ride on
households’ provision of public-good substitutes.
It could very well be that any effect of remittances is obtained via other chan-
nels. For instance, Tyburski (2012) suggests that remittances can also increase
‘voice’ by providing resources and networks for recipients to organize politically,
432 Journal of Theoretical Politics 30(4)
To continue reading
Request your trial