DP11377-2 | Electoral Accountability and the Natural Resource Curse: Theory and Evidence from India

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Does secession yield economic dividends for natural resource rich regions? We exploit the formation of new Indian states in 2001 to uncover the effects of political secession on the comparative economic performance of natural resource rich and natural resource poor areas. We show that resource rich areas fare comparatively worse within the new states. Since the management and control of extraction rights in the Indian context resides with state-level institutions, we argue that these patterns reflect effects of political reorganisation on the quality of state governance in relation to natural resources. We describe a model of collusion between state politicians and local natural resource rent recipients that can account for the relationships we see in the data on how natural resource abundance shapes post-breakup local economic outcomes.