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Political Economy and Natural Resource Use

López Ramón and Michael A. Toman

in Economic Development and Environmental Sustainability: New Policy Options

This chapter examines evidence on the four ways in which a nation’s political system and its natural resource use are linked. First, when property rights to resources are weak, competition to acquire ... More

This chapter examines evidence on the four ways in which a nation’s political system and its natural resource use are linked. First, when property rights to resources are weak, competition to acquire resources can be wasteful and characterized by rent-seeking and violent conflict. Weak ownership claims are most likely in countries where the rule of law is not well-established. Second, when a country’s political system is unstable or non-representative, the individual’s claim to a resource stock’s future return can be rendered insecure, reducing the payoff to natural resource conservation. Third, when a country’s natural resources are capable of generating significant rents but institutions of democratic governance and the rule of law are not well-established, corruption by government officials responsible for resource management can encourage rent-seeking, dissipating the benefits those resources would otherwise confer. Fourth, the mix of private vs. public good outputs produced by a nation’s natural resources (e.g., forests) can be affected by its political system. When a country’s government does not represent the interests of the entire population, the use of resource stocks to provide public good amenities, as opposed to salable products, may be under-emphasized.Less

The Role of Natural Resources

Richard Pomfret

in The Central Asian Economies in the Twenty-First Century

This chapter examines the characteristics of the natural resources that are important for Central Asia. At independence, cotton was the most important commodity export from Central Asia, but cotton ... More

This chapter examines the characteristics of the natural resources that are important for Central Asia. At independence, cotton was the most important commodity export from Central Asia, but cotton did not share in the commodity boom, never repeating the 1995 peak price of over a dollar per pound. In the twenty-first century, cotton has been displaced by oil and gas and minerals. However, all the governments have shown concern about ongoing dependence on primary product exports, whose importance increased after independence despite plans for economic diversification. The chapter then reviews the resource curse literature that highlights why primary product dependence may be harmful. Resource curse outcomes are not inevitable, but resource-abundant countries do face significant obstacles if they want to avoid such an outcome.Less

An Institutional Resource Curse in Argentina and Brazil

Carol Wise

in Dragonomics: How Latin America Is Maximizing (or Missing Out on) China's International Development Strategy

This chapter details the incorporation of Argentina and Brazil into China’s internationalized development strategy as its demand for natural resources skyrocketed. In doing so, it considers the ... More

This chapter details the incorporation of Argentina and Brazil into China’s internationalized development strategy as its demand for natural resources skyrocketed. In doing so, it considers the effects of institutional weakness and natural resource abundance on economic performance and the ways effective institutions deteriorate during a commodity boom. It proceeds in three sections: the first analyzing the rise of China in Argentina and Brazil post-2000, the second reviewing the developmentalist model both countries implemented during that time, and the third analyzing the resulting institutional erosion.Less

Aid and Rent‐driven Growth: Mauritania, Kenya, and Mozambique Compared

Richard M. Auty

in Foreign Aid for Development: Issues, Challenges, and the New Agenda

This chapter conceptualises foreign aid as a geopolitical form of rent in order to help distinguish the conditions under which aid is detrimental to sustained economic recovery from those where it is ... More

This chapter conceptualises foreign aid as a geopolitical form of rent in order to help distinguish the conditions under which aid is detrimental to sustained economic recovery from those where it is beneficial. Foreign aid shares with natural resource rent and contrived (i.e., government monopoly) rent the property of being a large revenue stream that is detached from the economic activity that generates it, and elicits political contests for its capture. Rent-driven models suggest such contests have two adverse effects: (i) they deflect government incentives into rent-channelling at the expense of promoting wealth creation; and (ii) the resulting political allocation of the rent distorts the economy and precipitates a growth collapse, which is protracted. In this context, the three principal causes of aid failure identified in the literature (corruption, a poor policy environment and Dutch disease effects) are all symptoms of the destabilizing impact of rent streams on immature political economies. Consequently, the deployment of foreign aid to revive collapsed economies runs the risk of perpetuating rent-seeking and thereby postponing essential economic restructuring. This chapter compares the varied impacts of aid on the development trajectories of Mauritania, Kenya, and Mozambique. It argues that successful aid deployment requires: recognition that aid modalities differentiate aid's effectiveness; stronger public accountability; and the construction of a cohesive pro-reform political constituency. The paper proposes a dual track strategy as a politically practical means of deploying geopolitical rent to restructure distorted economies.Less

Dragonomics: An Internationalized Development Strategy

Carol Wise

in Dragonomics: How Latin America Is Maximizing (or Missing Out on) China's International Development Strategy

This chapter argues that China’s incorporation of Latin America into its internationalized development strategy stems from China’s need for resources from emerging economies to sustain its domestic ... More

This chapter argues that China’s incorporation of Latin America into its internationalized development strategy stems from China’s need for resources from emerging economies to sustain its domestic development, but this has highlighted the stark differences in institutional strength between LAC countries. To bear this claim out, the author examines the history of China-LAC commercial relations, as well as the similarities and differences between China’s developmental path and that of other East Asian Developmental States. Based upon three developmental themes, the author delineates six of China’s strategic partners in the region into three case studies: first, the free trade agreements pursued by Chile, Costa Rica, and Peru; second, the institutional resource curse suffered by Argentina and Brazil; and finally, the FDI export–led industrialization strategy adopted by Mexico. The countries in the first two case studies have built tighter economic ties with China, opening up more space for policymaking and innovation, while Mexico in the final case study has had less export-led trade with China and comparatively weaker economic growth.Less

Conclusion and Implications

Ryan Saylor

in State Building in Boom Times: Commodities and Coalitions in Latin America and Africa

This chapter reviews how commodity booms and coalitional politics produced marked state building divergence among six Latin American and African countries. Coalitional politics determined whether ... More

This chapter reviews how commodity booms and coalitional politics produced marked state building divergence among six Latin American and African countries. Coalitional politics determined whether natural resource wealth was a blessing or curse. This finding recasts the conventional wisdom on the “resource curse,” which views certain types of commodities as inherently perilous. This book indicates that, even in the context of weak institutions, certain types of political coalitions can help countries avert the pitfalls associated with resource wealth and instead harness it for developmental gains. Coalition building strategies, not commodity type, may be why a resource “curse” takes hold in some countries but not others. The book concludes by describing how these findings have practical implications for the management of natural resource wealth in the developing world.Less

Oil, Volatility, and Institutions: Cross-Country Evidence from Major Oil Producers

Amany El-Anshasy, Kamiar Mohaddes, and Jeffrey B. Nugent

in Institutions and Macroeconomic Policies in Resource-Rich Arab Economies

This chapter examines the long-run effects of oil revenue and its volatility on economic growth, as well as the role of institutions in this relationship. We collect annual and monthly data on 17 ... More

This chapter examines the long-run effects of oil revenue and its volatility on economic growth, as well as the role of institutions in this relationship. We collect annual and monthly data on 17 major oil producers between 1961 and 2013, and use the panel autoregressive distributed lag (ARDL) approach as well as its cross-sectionally augmented version (CS-ARDL) for estimation. Therefore, in contrast to earlier literature on the resource curse, we take into account all three key features of the panel: dynamics, heterogeneity, and cross-sectional dependence. The results suggest that: (i) oil revenue volatility has a significant negative effect on output growth; (ii) a higher growth rate of oil revenue significantly raises economic growth; and (iii) better fiscal policy can offset some of the negative effects of oil revenue volatility. We therefore argue that volatility in oil revenues combined with poor governmental responses to this volatility drives the resource curse paradox.Less

Hijacking the Imagination: How to Tell the Story of the Niger Delta

Jennifer Wenzel

in The Disposition of Nature: Environmental Crisis and World Literature

This chapter examines texts about the Niger Delta in several genres (Ogaga Ifowodo’s poem The Oil Lamp; fiction by Uwem Akpan, Helon Habila, and Ben Okri; the photo-essay anthology Curse of the Black ... More

This chapter examines texts about the Niger Delta in several genres (Ogaga Ifowodo’s poem The Oil Lamp; fiction by Uwem Akpan, Helon Habila, and Ben Okri; the photo-essay anthology Curse of the Black Gold; Sandy Cioffi’s film Sweet Crude). Juxtaposing political ecology’s analysis of natural resource conflicts with Benedict Anderson’s notion of imagined communities, the chapter argues that the relationships among petroleum extraction, literary production, and national imagining in Nigeria are better described as un-imagining, a corollary of underdevelopment as a transitive process of unmaking. Postcolonial citizenship entails a struggle over key questions: What is the state for? To whom do natural resources belong? Oil hijacks the imagination, promising wealth without work, progress without the passage of time. This dynamic manifests as petro-magic-realism, a literary variant of the resource curse hypothesis that blames the ills of resource extraction on the substance rather than social relations. The execution of Ken Saro-Wiwa in 1995 galvanized world attention on the Nigerian petro-state; the subsequent explosion of violence in the Niger Delta can be read as a perverse realization of some of his demands for ethnic autonomy and resource control.Less

The Resource Curse and Transparency

Charles Cater

in International Development: Ideas, Experience, and Prospects

Transparency-based policies are currently the principal approach to mitigating the resource curse in developing countries, particularly with respect to corruption and conflict. Policy making often ... More

Transparency-based policies are currently the principal approach to mitigating the resource curse in developing countries, particularly with respect to corruption and conflict. Policy making often reflects conventional assumptions about the nature of the problem: the traditional financial opacity of the extractive industries enables illicit appropriation of resource rents, while correlations between natural resource dependency and intrastate conflict are explained through reference to combatant financing mechanisms. Accordingly, transparency has been widely adopted as an integral policy component, whether through financial regulation, commodity tracking, or resource interdiction. Policy making has also been influenced by political and economic interests among states, international organizations, and transnational corporations. The available evidence suggests there is sufficient reason to critically re-examine the assumption that increased economic transparency necessarily translates into enhanced political accountability in developing countries. The mixed track record of transparency-based policies suggests alternative and complementary approaches to escape the resource curse should also be considered.Less

Popular Resource Sovereignty

Leif Wenar

in Institutional Cosmopolitanism

Article 1 of both of the major human rights covenants declares that the people of each country “shall freely dispose of their natural wealth and resources.” This chapter considers what conditions ... More

Article 1 of both of the major human rights covenants declares that the people of each country “shall freely dispose of their natural wealth and resources.” This chapter considers what conditions would have to hold for the people of a country to exercise this right—and why public accountability over natural resources is the only realistic solution to the “resource curse,” which makes resource-rich countries more prone to authoritarianism, civil conflict, and large-scale corruption. It also discusses why cosmopolitans, who have often been highly critical of prerogatives of state sovereignty, have good reason to endorse popular sovereignty over natural resources. Those who hope for more cosmopolitan institutions should see strengthening popular resource sovereignty as the most responsible path to achieving their own goals.Less

The Determinants of Long-Term Growth in the GCC Countries

Raphael Espinoza, Ghada Fayad, and Ananthakrishnan Prasad

in The Macroeconomics of the Arab States of the Gulf

GDP growth in the GCC has been considerably higher than in advanced economies and other oil exporters outside the region since 1986. The chapter shows that the GCC countries have swiftly accumulated ... More

GDP growth in the GCC has been considerably higher than in advanced economies and other oil exporters outside the region since 1986. The chapter shows that the GCC countries have swiftly accumulated large stocks of physical capital but the population increase and the shift away from oil meant that capital intensity remained roughly constant or even decreased. A growth accounting exercise also suggests that total factor productivity growth has been disappointing. One potential explanation is that the kind of capital that has been accumulated in the region (aircraft, computer equipment, electrical equipment) is not fully productive because the labor force is not educated enough. The paper also discusses the lessons from the empirical growth literature for the GCC. The poor quality of institutions and the large size of government consumption, both of which are possible symptoms of a resource curse, could explain the disappointing TFP growth.Less

Two Models

Michael Herb

in The Wages of Oil: Parliaments and Economic Development in Kuwait and the UAE

This book examines the divergent paths followed by Kuwait and the United Arab Emirates (UAE): whereas the UAE, led by Dubai, has diversified its economy beyond oil, the Kuwaiti economy remains almost ... More

This book examines the divergent paths followed by Kuwait and the United Arab Emirates (UAE): whereas the UAE, led by Dubai, has diversified its economy beyond oil, the Kuwaiti economy remains almost entirely dependent on oil. It analyzes the distinctive politics and economics of the Gulf monarchies by focusing on how the often-competing interests of rulers, capitalists, citizens, and expatriates take shape in Gulf states with more or less political participation and in those with more or less oil rent per capita. It describes two groups of Gulf rentiers: extreme rentiers (Kuwait, UAE, and Qatar) and middling rentiers (Saudi Arabia, Oman, and Bahrain). It also considers the Kuwaiti National Assembly and how it gives the citizen majority a voice in determining economic policy. Finally, it compares the Dubai model and the Kuwait model of economic development and their influence in the Gulf. In the remainder of this chapter, the literature on the resource curse is discussed, with particular emphasis on how it deals with class politics in really rich rentiers.Less

Introduction

Philippe Le Billon

in Wars of Plunder: Conflicts, Profits and the Politics of Resources

This chapter presents the major arguments, approach and structure of the book.

Natural Resources and Economic Development in Brazil

Sarah M. Brooks and Marcus J. Kurtz

in New Order and Progress: Development and Democracy in Brazil

Brazil stands out as an emblematic exception to the "curse" of natural resources (especially oil)-in both its political and economic variants. Despite a history of abundance of, and reliance upon, ... More

Brazil stands out as an emblematic exception to the "curse" of natural resources (especially oil)-in both its political and economic variants. Despite a history of abundance of, and reliance upon, immense mineral wealth, it has for more than a half century undergone a surprisingly robust and broad-based industrial expansion, while in the contemporary era even improving sharply its ability to discover, extract, and commercialize petroleum products. This exceptional conjuncture is examined in the context of two legacies of Brazil's developmental state, namely, investments in human capital and industrial capacity. State-led industrialization, whatever its other fiscal and macroeconomic consequences, provided a foundation for the transformation of oil into a developmental blessing, rather than a curse.Less