Secession with Natural Resources

We look at the formation of new Indian states in 2001 to uncover the effects of political secession on the comparative economic performance of natural resource rich and natural resource poor areas. Resource rich constituencies fared comparatively worse within new states that inherited are relatively larger proportion of natural resources. We argue that these patterns reflect how political reorganisation affected the quality of state governance of natural resources. We describe a model of collusion between state politicians and resource rent recipients that can account for the relationships we see in the data between natural resource abundance and post-break up local outcomes.