A System Dynamics Approach to the Political Economy of Resource-dependent Nations

Saeed Pourmasoumi Langarudi, Worcester Polytechnic Institute


"Development on the basis of extraction and export of natural resources is a dynamically complex problem. Empirical evidence shows that while some nations have been successful to translate natural resource wealth into long-term development but many have failed too. In this dissertation a system dynamics approach is taken to understand why this is happening and what strategies could facilitate a resource-based development process. In this regard, Mashayekhi’s model of oil-dependency of Iranian economy as one of the few relevant system dynamics examples is updated and revalidated. The results show that despite its capability in showing the dynamics of the problem from an economic perspective it lacks socio-political features that are necessary to address the most fundamental issues of resource-based development. It is shown that Katouzian’s theory of “arbitrary state and society” could fill this gap. The theory is, thus, translated into a system dynamics model so that it could be tested for internal consistency and used for policy analysis. The model is able to explain long-term socio-political-economic instability of a resource-dependent society. On the basis of Mashayekhi’s model, Katouzian’s theory, and other fundamental explanations of natural resource dependency that are available from the literature, a generic eclectic model is developed. The model has gone through a comprehensive list of confidence-building tests. Controlled experimentation through Monte Carlo simulations show that, on the contrary to the current belief, it is unlikely that natural resource wealth be harmful for social welfare. Results also revealed that rule of law is a crucial factor that affects trajectory of the socio-political-economic development. Other findings are as follow. Civil resistance (disobedience) can be harmful for the system in the long-run. While sanctions could affect the economy it has barely an impact on socio-political settings of a society. Finally, wage stabilization, facilitation of social mobility, and privatization of natural resource revenues within certain limits) could help the resource-based development to achieve better outcomes."