The political logic of renter’s insurance : the resource curse, institutions, and the foundations of institutional strength in Latin America

What effects do natural resources, and more specifically the revenues from the extraction and sales of commodities, have on the economies of well-endowed countries in Latin America? How does the political administration of natural resource wealth affect the economic trajectories of these developing countries? Under what conditions do countries successfully use political institutions to administer natural resource windfalls prudently? My dissertation addresses these questions and ultimately explains why natural resource wealth is a blessing for the development of some countries and a curse for others. Specifically, I examine the effectiveness of specific government institutions—called Nonrenewable Resource Stabilization Funds (NRSFs or stabilization funds), which help countries to manage the economic challenges associated with relying upon volatile natural resource revenues—in Chile and Venezuela, two natural resource-rich Latin American countries. Although both of these countries created a NRSF, Chile’s has been very successful while Venezuela’s was extremely weak from the outset. My research suggests that the degree of stabilization fund success—which impacts the severity of the resource curse—depends on these institutions constraining political actors from using rents for venal purposes. In turn, I find that the capacity of NRSFs to restrain the passions of self-interested executives is largely a product of the circumstances accompanying the creation of these institutions; that is, the conditions into which these institutions are born impact stabilization fund performance, but not in the way that the traditional literature predicts. In contrast to extant explanations suggesting that NRSF success is dependent upon clear institutional rules or general state capacity, I find that stabilization funds tend to be unsuccessful when political needs drove their creation while these institutions are likely to function well when economic concerns were the impetus for their adoption. I substantiate the case study evidence of Chile and Venezuela with a broad statistical analysis of 20 other countries that have created NRSFs.