Which comes first: good governance or prosperity? A historical experiment from the South African Republic and the Orange Free State

Stellenbosch Working Paper Series No. WP02/2018
 
Publication date: January 2018
 
Author(s):
[protected email address] (Stellenbosch University)
[protected email address] (Department of Economics, Stellenbosch University)
 
Abstract:

Two neighbouring republics, with a common history and culture, followed very different paths of development in the second half of the nineteenth century. Extraordinary mineral wealth was discovered during this period in the South African Republic (ZAR), the neighbour where political and economic stability was fragile compared with the Republic of the Orange Free State (OFS). We connect these divergent development paths to the literature on the resource curse, especially the recent literature on the conditional resource curse where the quality of the institutional structure plays a crucial role in the outcomes of a large resource discovery. By introducing a new objective measure for the quality of institutions, namely the accuracy of boundaries on maps, we provide evidence of the institutional quality in the ZAR prior to the discovery of gold on the Witwatersrand. The statistical technique that we use, Procrustes analysis, is an innovation in economic analysis. The evidence supports Acemoglu and Robinson's account of the development path in the ZAR, and the later Union of South Africa, as compromised by the conditional resource curse.

 
JEL Classification:

N17, B15, O43

Keywords:

Resources curse, Institutional Economics, South Africa

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BER Weekly

3 August 2020
The week started with news of the confirmation of the $4.3 billion (bn) loan from the International Monetary Fund (IMF) through its Rapid Financing Instrument. In the process of obtaining the loan, the government re-committed itself to the fiscal consolidation outlined in the supplementary budget presented in June, including to introduce zero-based...

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