Isabelle Ramdoo, ECDPM Bangkok, Thailand, 11 – 13 June 2013

1. Isabelle Ramdoo
European Centre for Development Policy Management
Bangkok, Thailand, 11 – 13 June 2013
Developing Resources –
Resource Curse or Resource
Blessing?

2. 1. What is the resource curse?
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3. • Countries with large natural resource endowments
perform worse in terms of economic development and
governance that those with fewer resources
• Used for the first time by R. Auty in 1993;
• Sachs and Warner (1995; 2001) observed similar
trends: economic dependence on oil and minerals was
correlated with slow economic growth;
• Other studies also find negative effect of oil on
economic performance (Smith 2004; and Kaldor, Karl
and Said 2007); corruption (Sala-i-Martin &
Subramanian, 2003); civil war (Humphreys, 2005) and
democratic development (Ross, 2001).
1.a. Definition and empirical evidence
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4. Source: Frankel, 2012
Empirical evidence show that growth slower as share of minerals in
exports are higher
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5. Fortunately not. The challenge is not about the resources
themselves, but rather the result of their mis-management.
Variations across countries
• Some countries have performed well: Norway, Canada,
Australia but also Botswana, South Africa, Chile, Indonesia
etc
New literature: NR wealth are contingent to other factors –
institutions and governance
- Haber and Menaldo, 2011; Maloney 2007, Dunning 2008;
- Humphreys 2005 – Finds no correlation between NR and
war
- Robinson et al, 2006 – countries with accountable govt
benefit from boom
1.b. Are resources necessarily bad?
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6. First we need to understand what are the distinctive
characteristics of NR?
1. “Enclaved sector” : NR does not need to be produced but
only needs to be extracted. Can operate independently of
other economic activities
2. Non renewable: more like an asset than a source of
income
3. Resources are unevenly spread
4. Unequal geological knowledge and negotiation expertise
These features give rise to a complex set of political and
economic processes that, when combined, may produce
adverse effects on the economy. E.g “rent seeking
behaviour”- which in turn create incentives to use political
mechanisms to capture these rents
2. Where does the resource curse come from?
Specific Characteristics
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7. What is the mechanism for this counter-intuitive
relationship?
At least 4 categories of explanations
1. Price volatility
2. Dutch Disease
3. Procyclicality including
1. Procyclical capital flows
2. Procyclical monetary policy
3. Procyclical fiscal policy.
4. Inhibited development of institutions
3. Channels of resource curse:
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8. Source: Frankel
i. Volatility in commodity prices
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9. Earnings from NR are generally volatile as a result of (a)
variation in rates of extraction; (b) variations in payments
(taxes) to state by companies; (c) fluctuation in value of
NR (and their price on world market). The latter has been
less volatile in recent years as a result of the increasing
“financiarisation” of the commodities sector.
This renders long term economic planning difficult.
Volatility in receipts leads to volatility in government
expenditure on infrastructure, social spending etc.
Volatility has also exacerbated debts of countries when
price of commodities fall (eg. Mexico, Nigeria and
Venezuela in 1980’s when price of oil fell)
Price volatility
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10. Resource-rich countries often experience a decline in pre-
existing domestic sector due to an increase in the value of
Result:
1) A real appreciation in the currency
2) Other sectors find it difficult to export
3) A rise in government spending
4) A rise in non-traded goods prices
5) Simultaneously labour and other factors of production
shift to the NR sector from other sectors (agric, manuf etc).
6) A resultant shift of production out of manufactured goods
7) Sometimes debt.
ii. Dutch disease
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11. How the Dutch Disease works
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12. • The Dutch Disease describes unwanted side-effects of a
commodity boom.
• Commodity exporting countries are historically prone to
procyclicality,
• Procyclicality in:
Capital inflows; Monetary policy;
Real exchange rate; Non-traded Goods
Fiscal Policy
iii. Pro-cyclical behaviours
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13. iv Inhibited development of institutions:
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14. 1. Economic challenges
a. Excessive dependence on exports and rents
b. Undiversified economic structures
c. Fast growth but high income inequality
2. Governance and political challenges
a. Weakened accountability and citizens legitimacy
b. Transparency and corruption
c. At times conflicts and war
4. Major challenges facing countries
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15. Oil and Gas rents as a share of GDP, 2010 Mineral rents as a share of GDP, 2010
Oil as gas as a share of exports, 2009 Ores and metals as a share of exports, 2009
i.a Excessive dependence on exports and rents
(Africa)
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16. Number of export products representing more than 75% of total
merchandise exports, 2010
1.b Undiversified economic structures (Africa)
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17. Mineral rich, GNI per capita, $2010 Oil rich, GNI per capita, $2010
1.c High income inequality (Africa)
Source: WB, 2012, WDIs Page 17
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18. ii.a Weak accountability and legitimacy
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19. ii.b Transparency and corruption
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20. ii.c At times war and conflicts
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21. • The Natural Resource Curse should not be
interpreted as a rule that commodity-rich
countries are doomed to fail.
• The question is what policies to adopt
to avoid the pitfalls and improve the chances of
prosperity.
 A wide variety of measures have been tried.
 Some work better than others.
Conclusion
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22. ECDPM Page 22

23. Thank you
www.ecdpm.org
www.slideshare.net/ecdpm
Contact: ir@ecdpm.org
Twitter: @ir_ramdoo
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