Spending to Survive: The Politics of Economic DIversification in Oil-Dependent Autocracies

Abstract

What determines whether leaders in oil-dependent autocracies will invest in economic diversification? The existing literature finds that oil-dependent regimes tend to block diversification from happening. However, various autocracies around the globe have repeatedly attempted–and mostly failed–to diversify their economy through massive investment programs.

This dissertation proposes and empirically tests a new theory of regime survival and strategic resource allocation to explain the observed variation in diversification strategies. The theory argues that incumbents use diversification programs as yet another tool for regime survival geared towards Politically Influential (PI) groups that lie outside the decision-making circle, yet have sufficient political influence to credibly threaten the incumbent's hold on power. It proposes that, in addition to the findings of the existing literature, two additional scenarios are taking place: (1) diversification programs can bring political benefits while creating economic costs–as a rent-distribution mechanism; (2) they can also simultaneously generate political and economic benefits–as a rent-generation mechanism.

Based on an original dataset of public investments in diversification programs and PI groups in twenty-five oil-dependent autocracies over forty-six years, the empirical analysis shows that the size of PI groups and the generational composition of the incumbent's PI group of origin influence (1) the incumbent's incentive to invest in diversification programs, and (2) the extent to which those investments will become profitable. Through the combination of large-N analysis and in-depth case studies, this dissertation finds that those programs are used as a way for incumbents to diversify their survival politics, through the implementation of both productive and unproductive programs tailored to the needs and interests of specific PI groups.

By analyzing political drivers of diversification strategies, this dissertation uncovers a powerful mechanism by which oil can affect the political stability of rentier regimes through spending patterns. It contributes to the growing literature on the conditional effects of natural resources on both economic and political outcomes.