Transition reform in the mineral-rich Caspian region countries

In the absence of a developmental political state, natural resource abundan ce may impede the economic transition by diminishing the urgency of reform and by distorting the economy (through Dutch disease effects and also rent- seeking behavior and corruption). These problems tend to be especially acut e in mineral-rich economies because the socio-economic linkages from mining concentrate revenues on the government and increase the risk of policy fai lure. This paper tests these hypotheses through a comparison of mineral-ric h and resource-poor countries in transition in the Caspian region, all of w hich failed to evolve developmental political states. It shows that the min eral-rich countries are slower reformers, despite the fact in three of the four resource-poor countries the reforms were adversely impacted by civil s trife. Mineral-rich countries also experience a stronger rebound of the rea l exchange rate and greater shrinkage of employment in the tradeable sector . These differences are reflected in a reverse J-shape post-transition deve lopment trajectory for the mineral-rich countries compared to the V-shaped trajectory of the resource-poor countries. However, rent-seeking and corrup tion do not appear to vary with the natural resource endowment. (C) 2001 El sevier Science Ltd. All rights reserved.