Transcript The Resource Curse

The Resource Curse
NS4053
Week 7.1
Agenda
• What is the resource curse and why pay attention
to it?
• Resource curse: mineral vs. fuel export
dependency
• Impact of oil exports dependency on
development
• Is high level of resource export dependency
always a curse?
• Specifying when resource exports are a problem
Mineral wealth dependency
What is the resource curse?
• Resource export dependency: found in
countries with high levels of mineral and/or
fuel exports relative to their overall economy.
• Resource curse: resource export dependent
countries experience poor economic, political
and social outcomes compared to countries
without this dependency.
Why focus on the resource curse?
• Associated with autocracy, political instability,
poor economic and social outcomes.
• Associated with ‘order breaking’ states.
• Associated with higher levels of internal
conflict and international conflict.
• Associated with states challenging prevailing
international order or creating national or
human security issues that spill over borders.
Commodity Prices 1996-2010
Special characteristics of oil
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National asset
Motor of globalization
Depletability
Boom-bust cycles
Capital intensive
Enclave nature
Exceptional profits
Paradox of Plenty
• Resource curse appears to be more acute in
developing countries where oil exporting is
the dominant industry.
• Most oil reserves now found in developing
world.
• Developing states with oil exporting industries
experience lower per capita GNP growth than
other developing states.
Impact of oil exports on development
• Dutch disease: oil exports  currency
appreciation  other sectors of domestic
economy being uncompetitive.
• Rentier states:
– governments do not need citizens for taxes, citizens
do not have ‘skin in the game.’
• Political economy of oil exporters:
– Politics of allocating oil rents shapes state and society.
– Perverse incentives
Socioeconomic impact
• Paradoxically, high poverty and income
inequality
• Lack of diversification in economy
• Changes in society
– Fewer domestic entrepreneurs and professionals.
– Middle class vulnerable to boom/bust cycles.
– Few jobs for working class.
– High rates of urbanization and immigration.
Impact on State
• Tendency towards weak states with broad scope:
– Lack the constraints that promote efficiency and
responsiveness to citizens.
– Citizens expect ‘wealthy’ state to have responsibility
for a wide range of activities.
– Lack incentives to develop state capacity.
– Experience loss of fiscal discipline.
– Poor record of investing oil wealth.
– High levels of corruption.
Political results of oil export
dependency
• Undermines democratization.
• Patronage politics rather than representative
politics.
• Autocratic governments buy political peace:
– Welfare spending and police state.
• Internal divisions in country may increase
– Civil wars and secession movements.
– Resources available to fund long wars.
– Westernization and failure to meet expectations lead
to anti-Western backlash movements.
Not always a curse?
• Is oil just another mineral or is it special?
• Does oil undermine development or encourage it?
– When education and technology are indigenously available
to develop industry, encourages it.
• Do US and Norway cases contradict oil curse?
– Correct mix of property rights and institutions.
• Poor outcomes not a result of mineral wealth but of
government policy.
– Sure, but why is government policy frequently poor in
countries with high levels of exports of minerals?
• If oil curse is correct, what is to be done about it?
Resource curse: correlation or
causality?
Torvik: key explanations
• Saving vs. consumption of resource income.
– Mineral wealth producers have poor savings records.
• Presidentialism vs. parliamentarianism.
– Presidential systems tend to concentrate power.
– ‘Winner take all’ and fixed terms decrease importance
of consensus politics.
– Parliamentary systems depend on continuous support,
so more consensual approach to oil wealth.
• Institutional quality
– Only countries in the top 20% (n=87) of institutional
quality show benefit from resource income.
Torvik: key explanations
• Offshore vs. onshore oil: offshore is harder to
do, so it drives more indigenous technological
development.
• Early vs. late industrialization
– Early industrializers least affected by resource
curse.
– Tend to also have high quality institutions, which
is why they industrialized first.
Possible solutions?
Tune in Wednesday