03-titel-1 + bold Master of Occus 03-titel-4 As aliquia natum quo ea que quiae cum rorae. Regional Resources and Democratic Secessionism Kai Gehring Stephan A. Schneider CIS Working Paper No. 100* 2018 *This is an update of CIS Working Paper No. 90 (2016) Center for Comparative and International Studies (CIS) Regional Resources and Democratic Secessionism Kai Gehring ∗ Stephan A. Schneider ∗∗ August 20, 2018 Abstract: Although regional resources have been shown to influence secessionist conflicts in developing countries, their effect in established democracies has largely been neglected. We integrate resource value in a model on the optimal size of nations and show that regional wealth correlates positively with secessionist party success in a large panel of regions. To establish causality, our difference-in-differences and triple-differences designs exploit that Scotland and Wales both feature separatist parties, but only an independent Scotland would profit from oil discoveries off its coast. We document an economically and statistically significant positive effect of regional resources and rule out plausible alternative explanations. Keywords: Secession, Separatism, Size of nations, Resources, Nationalism, Economic voting JEL Codes: D70, H77, N9 Acknowledgments: We thank Toke Aidt, Alberto Alesina, Sascha Becker, Bruno Caprettini, Paul Collier, Alan Drazen, Axel Dreher, Florian Foos, Jeff Frieden, James D. Hamilton, David Hemous, Kaivan Mun- shi, Valerie A. Ramey, Dominic Rohner, Jan-Egbert Sturm, Hans-Joachim Voth, and many others for their helpful comments. Moreover we thank participants at the PEUK Conference in Oxford 2016, the EPCS Conference 2016 in Freiburg, the Development Conference “Goettinger Schule” in Göttingen, the National Tax Assiciation Annual Meeting 2017 in Philadelphia, and at seminars at the political science and the eco- nomics department of the University of Zürich, the University of Cambridge, Heinrich-Heine University Düsseldorf, Heidelberg University, HEC Lausanne, the University of Konstanz as well as the members of Clare Hall at the University of Cambridge. We also thank Christiane Baumeister and Pippa Norris for sharing their data. Michael Andrews, Valerie Baldinger, Michele McArdle, Till Müller, Lukas Willi, Janine Albiez, and Jake Hall provided excellent research assistance and support. Kai Gehring received financial support from a Swiss National Science Foundation Ambizione grant. Stephan Schneider conducted part of this research at the University of Cambridge with financial support from the Cusanuswerk. ∗ Kai Gehring, University of Zürich: [email protected]. Webpage: http://www.kai-gehring.net. ∗∗ Stephan A. Schneider, Heidelberg University: [email protected]. 1 INTRODUCTION 1 “The foolish ones said to the wise, ‘Give us some of your oil; our lamps are going out.’ ‘No,’ they replied, ‘there may not be enough for both us and you. Instead, go to those who sell oil and buy some for yourselves.’ ” Matthew 25, 8-9 – The Parable of the Wise and Foolish Virgins 1 Introduction While many regions around the world experienced a surge in the vote share of secessionist parties, other democracies with comparable levels of cultural heterogeneity did not. The existing literature on the op- timal size of nations, mostly focusing on scale advantages like improved trade opportunities as the main benefits from larger states and on preference heterogeneity fostering secession and smaller entities, does not sufficiently explain this phenomenon. We argue that, in addition to these factors, regional resources and their changing value are crucial to explain the success of secessionist parties. This relates to the literature on natural resource wealth and state stability in developing countries (see, e.g., Arezki & Brückner, 2012; Berman et al., 2017), where emerging distributional conflicts often culminate in armed conflicts and severe civil wars (e.g., Collier, 2010; Morelli & Rohner, 2015). As outright conflict is fortunately less likely in wealthier countries with stable democratic systems (Collier & Rohner, 2008), the role of regional resources has mostly been overlooked. We argue and show that taxable resources boost the vote share of democratic parties that advocate secession from a re-distributive nation state.1 Our simple probabilistic voting model integrates the potential advantages and disadvantages of a larger nation state, emphasized by authors like Alesina & Spolaore(1997), but augments them by including differences in regional resource endowment. Resources generate taxable revenue, which is subject to fiscal redistribution across regions, relating our study to the literature on fiscal federalism and transfers (e.g., Becker et al., 2010; Persson & Tabellini, 1996; Baskaran et al., 2016; Asatryan et al., 2017). The resources, on which regional wealth is based, can be of very different types. Several examples illustrate that they comprise natural resources, but also advantageous geographic characteristics that make a region suitable for tourism or as a transport hub, as well as superior human capital or historically better institutions. To get an idea about the relevance of our mechanism, we then use regional wealth (a region’s GDP p.c. in relation to the national average) to proxy for the revenues generated from regional resources. Using a newly gathered panel data set covering elections from 1970 to 2016 in 29 regions from culturally diverse countries, we show that changes in relative regional wealth correlate positively with secessionist party 1 Resources are known to affect, among others, local election outcomes (Ferraz & Monteiro, 2014), and local government behavior (Caselli & Michaels, 2013), but understanding their effect on separatism is of broader importance for the stability of nations today and in the foreseeable future. 1 INTRODUCTION 2 success. A 10 percentage point increase in relative regional wealth is associated approximately with a 3 percentage point increase in votes for separatist parties. The results are robust to using different fixed effects, control variables and time trends, as well as to the omission of individual regions and years. This strong correlation underlines the general importance and external validity of the hypothesized mech- anism, but does not identify a causal effect of regional resources. We then exploit the discoveries of North Sea oil in the United Kingdom (UK) as a natural experiment to estimate a causal effect of regional re- sources. The discoveries were almost exclusively within Scottish maritime boundaries (Kemp & Stephen, 2000), while there were no such discoveries in the region of Wales. Moreover, qualitative evidence indicates that the Scottish National Party (SNP) and the Welsh Plaid Cymru as well as both regions in general are sufficiently comparable for that purpose (see, e.g., Levy, 1995).This allows us to assess the performance of the two major existing secessionist parties in Scotland and Wales in a difference-in-differences (DiD) and triple-differences framework. The main analysis is based on a panel dataset containing 1883 observations from UK general elections and by-elections on the constituency-level, which we assembled for the 1945 to 2001 period. Resources did not play an important role in the political calculus of the secessionist parties in Scotland and Wales initially, however the situation fundamentally changed with the unexpected and large Scottish oil discoveries in 1970 (MacKay & Mackay, 1975). Hereafter, politicians from the SNP have tried to instrumentalize the large potential oil revenues as an argument for Scottish independence, and support for the party increased sharply (McGuinness et al., 2012).2 The slogan “It’s Scotland’s oil”, invented in 1972 and often quoted even today (Harvie, 1995), concisely reflects how politically relevant the oil discoveries were and still are for the SNP (Collier & Hoeffler, 2006; MacKay & Mackay, 1975). The setting is not only ideal for the reasons cited above but also because both parties exhibit indistinguish- able parallel pre-trends. Moreover, instead of relying on a simple pre-/post comparison we can use data about the exact size and timing of individual oil discoveries. The main specification uses giant discoveries, which are most salient to voters and account for the bulk of the revenue. Our results show that the SNP’s vote share significantly increased by about 2 percentage points for each additional giant oil discovery in the pre-election years. Simple back-of-the-envelope calculations suggest that this boosted the initial rise of the SNP after 1970 by 12-16 percentage points, explaining a large part of the party’s ascent. 2 Support for independence provisionally culminated in the referendum held on September 18, 2014, in which the Scottish people faced the choice of separating from the rest of the United Kingdom or staying unified. Even though a close majority of the Scots voted against independence, the fact that an independence referendum was held in a stable West-European country with a wealthy society is remarkable in itself. The official electoral outcome of the referendum is as follows; yes: 1,617,989 (44.5 percent); no: 2,001,926 (55.5 percent); turnout: 84.6 percent. The question asked on the ballot paper was: “Should Scotland be an independent country?” (see http://www.scotreferendum.com/information/, last accessed on 20th August 2018). But Scotland is no isolated case: in Québec, for instance, an independence referendum closely failed the majority in 1995 (Holitscher & Suter, 1999; Lynch, 2003). 2 LINKING