Resource Bonanzas and Political Elites: Evidence from an Electoral Autocracy

• In Event: Beyond Regulation: How States Influence Corporations (Virtual Session)

Abstract

How do political elites in electoral autocracies distribute rents from natural resource windfalls? Most members of the political elite are not directly involved in legislative or parliamentary committee affairs with regulatory authority over the natural resource industry, and therefore cannot use such positions of power to claim bribes from multinational corporations. In this paper, we identify the political elite as Politically Exposed Persons (PEPs) and show that PEPs respond to natural resource bonanzas – and the corresponding inflow of FDI – by establishing their own firms as vehicles for extracting money from the multinational corporations that invest in their economies. However, different factions of PEPs benefit differently from establishing corporate connections with multinationals, implying that the inflow of resources leads to a reconfiguration of wealth between competing elite groups.

To examine our claim, we marshal evidence from data consisting of the full population of individual business owners in Mozambique from 2000–2021. We match this data with information about whether each individual business owner holds a political mandate. This provides a unique window into which businesses are owned by PEPs, and when those individuals gain new ownership of firms that allows them to extract wealth derived connections to multinational corporations involved in the resource bonanza.

Leveraging the FDI boom in a difference-in-differences design, we uncover a number of results. First, we show that people who held a political mandate before the discovery of natural gas saw their business holdings increase dramatically when FDI surged. Second, we also show that this increase was not distributed equally among elites. Indeed, members of the ruling party experienced much larger increases in firm ownership than the opposition elite and business elites in general. Even within the ruling party's leadership, the rents were highly concentrated at the very top. Additionally, the increase in business ownership was driven by politicians who did not previously own a firm – suggesting that political elites responded to the resource bonanza by entering the market as firm owners.

Our results suggest that the ruling elite does not necessarily use sudden and large inflows of wealth to co-opt the opposition and their supporters. Instead, our results suggest that the FDI inflow caused a remarkable concentration of resources at the top of the political elite – and an equally remarkable redistribution of economic resources between different elite factions.

Authors

• Felix Sören Schilling, Copenhagen Business School

• Benjamin Egerod, Copenhagen Business School

• Anne Jamison, Princeton University

• Mogens K. Justesen, Copenhagen Business School