Understanding the Resource Curse: Causes and Solutions
School
McGill University**We aren't endorsed by this school
Course
GEOG 216
Subject
Economics
Date
Dec 11, 2024
Pages
3
Uploaded by EarlQuetzal4759
Lecture 23: The Resource Curse & Dutch DiseaseOutline:→The paradox of plenty→Causes of the resource curse-Income volatility-Rent-seeking, patronage and “living off the land”-Dutch Disease→Avoiding the resource curse-Norway-Developing countriesThe Paradox of Plenty“God gave us maize and the devil gave us oil” (Mexican proverb)→The “resource curse” symptoms:-Resource wealth; slow growth; high poverty; poor governance; weak states; revolution and conflict→Economic windfalls… -Boom and bust cycles-Deindustrialization -Inflation and overvalued exchange rates-Withering agricultural sectorMineral Exports and Economic GrowthThe more plentiful exports of fuels, ores, and metals, then the higher the economic growth rate (%).
Causes of the Resource Curse→Resource characteristics-Point-source (appropriable)-Owned by state-Low production cost; high value→Rents, not abundance→Three causes-Income volatility➢Three causes: Commodity price variation, rate of extraction, timing of receipt➢Consequences: Cycles of economic boom and bust, government spending is cyclical, borrowing money during boom times, bust… Oil prices, 1992-2022-Rent-seeking, patronage and “living off the land”➢Economic rents, political economy of rent-seeking, overconsumption, underinvestment, and taxation-Dutch Disease➢The symptoms: booming resource sector, inflation and currency appreciation (overvalued), withering manufacturing/agricultural sector➢Boom dynamics➢Economic causes: boom versus non-boom sector, tradeables versus nontradeables, resource allocation effect, spending effect➢Cause of Amazon rubber boom!Avoiding the Resource Curse – Industrialised Countries→The case of Norway-Impressive growth and wealth-Social contract central to strategy-Strategy: ➢Sovereign wealth fund➢High taxation of oil profits➢Collective and transparent wage negotiations via government➢Protection of agricultural sector
→Small country, small democracy, low corruption, media scrutiny, strong legal system and accountable bureaucracyAvoiding the Resource Curve – Developing Countries→The case of Nigeria-Large country, history of dictatorships, weak institutions-Weak growth and dissipation of wealth→Options?-Sovereign wealth fund-Transparency and accountability-Direct distribution mechanisms (Oil2Cash)➢Unconditional versus conditional cash transfers→Pre-oil… Oil revenues in Nigeria from 1965-2000s.