Transcript Rosser - RC - Session 3

Explaining Divergent Economic
Trajectories in Resource Rich
Countries:
Indonesia and Nigeria Compared
Introduction
• Although the evidence suggests that resource
rich countries have in general performed less
well than resource poor countries in
development terms, not all resource rich
countries have performed poorly. How can we
explain this?
• This lecture examines this question, focusing on:
– the issue of economic development
– the cases of Nigeria and Indonesia
• Indonesia and Nigeria provide good cases for
examining this question.
• First, the two countries have many similarities:
–
–
–
–
–
post-colonial states
large populations
heavily oil dependent
ethnically diverse, many languages
experience of authoritarian/military government
Fuel Exports
(% of Merchandise Exports)
Selected Years
Nigeria
Indonesia
1973
83
50
1983
94
76
1996
95
25
2003
97
25
• Second, they have had very different economic
records:
– Indonesia grew very strongly between late 1960s and
late 1990s while Nigerian economy grew very slowly
(see diagram).
– Indonesia made enormous in-roads into poverty while
Nigeria made very few (see diagram).
Economic Growth
Annual Growth Rate (%)
19
61
19
65
19
69
19
73
19
77
19
81
19
85
19
89
19
93
19
97
20
01
20
05
30
25
20
15
10
5
0
-5
-10
-15
-20
Year
Source: World Bank's World Development Indicators
Indonesia
Nigeria
Human Development Index
0.8
0.7
0.6
0.5
Indonesia
0.4
Nigeria
0.3
0.2
0.1
0
1975
1980
1985
1990
1995
2000
Source: UN Human Development Report, various years
2004
Explaining Nigeria’s and
Indonesia’s Divergent Economic
Trajectories
• The proximate cause of Indonesia’s relative
economic success vis-à-vis Nigeria is fairly
clear.
– Indonesia avoided the Dutch disease while Nigeria
did not
– More specifically, Indonesia managed to diversify
away from oil and gas to manufacturing and
agriculture while Nigeria did not
Manufacturing Value Added
Constant 2000 $US
70
50
40
Indonesia
30
Nigeria
20
10
0
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
19
92
19
96
20
00
20
04
$US billions
60
Year
Source: World Bank's World Development Indicators
35
30
25
20
15
10
5
0
Nigeria
Indonesia
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
19
92
19
96
20
00
Year
Manufacturing Value Added As a Percentage of GDP
Percent
Source: World Bank's World Development Indicators
Nigeria and Indonesia: Agricultural Value Added,
Constant 2000 US dollars
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
19
92
19
96
20
00
20
04
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Source: World Bank's World Development Indicators
Nigeria
Indonesia
70
60
50
40
30
20
10
0
Indonesia
Nigeria
19
60
19
64
19
68
19
72
19
76
19
80
19
84
19
88
19
92
19
96
20
00
20
04
Percent
Agricultural Value Added as a Percentage of GDP
Year
Source: World Bank's World Development Indicators
• The key question, then, is: why did Indonesia
manage to avoid the Dutch disease and Nigeria
not do so?
• Eifert et al (2002):
– Indonesia and Nigeria had different political regimes:
reformist autocracy vs. predatory autocracy.
– But this approach begs the question of why these
different regimes emerged in the first place.
• Bevan et al (1999) have emphasised differences
in ‘initial conditions’ and the ‘happenstance of
events’
– Initial conditions:
• Indonesia more vulnerable to fluctuations in world food
prices lead to greater concern with agricultural
development
• Indonesian military’s ‘dual function’ greater government
concern with reducing poverty
• Indonesia’s commercial elite vulnerable politically, while
Nigeria’s not  greater willingness to liberalise
– happenstance of events:
• President Sukarno’s vision for social cohesion greater
expectations vis-à-vis poverty reduction in Indonesia than
Nigeria
• hyperinflation in Indonesia in the mid-1960sgreater
concern to reduce inflation in Indonesia than Nigeria
• rapid economic growth in East Asiagreater trade and
investment opportunities for Indonesia than Nigeria
– On the whole, a good approach because it recognises
the role of social and historical factors in shaping
economic outcomes in resource rich countries.
– But some misinterpretations of specifics of the
Indonesian case  limits the value of their
conclusions.
My View
• Indonesia’s and Nigeria’s differential economic
performance reflects three factors:
– First, the different social bases of the Indonesian and
Nigerian states
• The Indonesian state has been defined more in class terms,
the Nigerian state more in ethnic terms, reflecting: (i) different
colonial administrative histories; (ii) differences in promoting
a national language.
– These differences have translated into different levels
of responsiveness to the interests/demands of local
and foreign capitalists
• In Indonesia, because the political elite have had a capitalist
class identity, they have had an interest in ensuring an
environment conducive to the continued reproduction of
capital
– They have even been willing to sacrifice the interests of local
cronies to attract mobile investment
• In Nigeria, by contrast, the political elite has been driven by
an ethnic rather than a class agenda, making it difficult for
them to reward local capital for the reasons pointed to by
Bevan et al (1999).
– Second, the fact that communism was a very powerful
political force at one point in Indonesia’s history
• Greater state attention to agricultural development
• Third, the different positions of the two countries
in the global political economy
– Indonesia has been more important in geo-political
terms than Nigeria (see figure on aid flows)
– Indonesia has been more favourably located in geoeconomic terms
7000.00
6000.00
5000.00
4000.00
3000.00
2000.00
1000.00
0.00
Indonesia
Year
Source: World Bank's World Development Indicators
2004
2000
1996
1992
1988
1984
1980
1976
1972
1968
1964
Nigeria
1960
$US million
Overseas Development Assistance and Official Aid
Conclusion
• Overcoming the resource curse requires:
– fundamental political and social change, specifically
the emergence of pro-capitalist political elites
– the emergence of a favourable geo-political and geoeconomic environment
• Overcoming the resource curse is thus very
difficult
– no easy technocratic fix
– need to focus on promoting long-term processes of
change
References
• Bevan D. et al (1999) Political Economy of Poverty,
Equity, and Growth: Nigeria and Indonesia, Oxford:
Oxford University Press.
• Eifert B. et al (2003) ‘The Political Economy of Fiscal
Policy and Economic Management in Oil Exporting
Countries’ in J. Davis et al (eds.) Fiscal Policy
Formulation and Implementation in Oil-Producing
Countries, Washington DC: International Monetary Fund,
pp.82-122.