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Institutions and the resource curse
TL;DR: In this article, the authors claim that the main reason for diverging experiences is differences in the quality of institutions, and they test this theory building on Sachs and Warner's influential works on the resource curse.
Abstract: Countries rich in natural resources constitute both growth losers and growth winners. We claim that the main reason for these diverging experiences is differences in the quality of institutions. More natural resources push aggregate income down, when institutions are grabber friendly, while more resources raise income, when institutions are producer friendly. We test this theory building on Sachs and Warner's influential works on the resource curse. Our main hypothesis: that institutions are decisive for the resource curse, is confirmed. Our results are in sharp contrast to the claim by Sachs and Warner that institutions do not play a role.
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TL;DR: The potential impacts of information and ICTs – especially e-government and social media – on cultural attitudes about transparency are explored.
1,850 citations
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TL;DR: This paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources and offers some welfare-based fiscal rules for harnessing resource windfalls in developed and developing economies.
Abstract: Are natural resources a “curse” or a “blessing”? The empirical evidence suggests either outcome is possible. The paper surveys a variety of hypotheses and supporting evidence for why some countries benefit and others lose from the presence of natural resources. These include that a resource bonanza induces appreciation of the real exchange rate, deindustrialization and bad growth prospects, and that these adverse effects are more severe in volatile countries with bad institutions and lack of rule of law, corruption, presidential democracies, and underdeveloped financial systems. Another hypothesis is that a resource boom reinforces rent grabbing and civil conflict especially if institutions are bad, induces corruption especially in non-democratic countries, and keeps in place bad policies. Finally, resource rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets. The survey also offers some welfare-based fiscal rules for harnessing resource windfalls in developed and developing economies.
1,570 citations
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TL;DR: The authors argue that politicians tend to over-extract natural resources relative to the efficient extraction path because they discount the future too much, and resource booms improve the efficiency of the extraction path.
1,456 citations
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TL;DR: The authors evaluate the empirical basis for the so-called resource curse and find that, despite the topic's popularity in economics and political science research, this apparent paradox may be a red herring.
966 citations
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TL;DR: In this article, the authors exploit exogenous price shocks in inter-national commodity markets and a rich dataset on civil war in Colombia to assess how dierent income shocks aect armed conflict.
Abstract: How do income shocks aect armed con‡ict? Theory suggests two op- posite eects. If labor is used to appropriate resources violently, higher wages may lower con‡ict by reducing labor supplied to appropriation. This is the opportunity cost eect. Alternatively, a rise in contestable income may increase violence by raising gains from appropriation. This is the rapacity eect. Our paper exploits exogenous price shocks in inter- national commodity markets and a rich dataset on civil war in Colombia to assess how dierent income shocks aect con‡ict. We examine changes in the price of agricultural goods (which are labor intensive) and natural resources (which are capital intensive). We focus on coee and oil, the two largest exports. We …nd that a sharp fall in coee prices in the 1990s increased violence dierentially in regions growing more coee, by lower- ing wages and the opportunity cost of joining armed groups. In contrast, a rise in oil prices increased violence dierentially in the oil region, by in- creasing municipal revenue siphoned through rapacity. This pattern holds in several other agricultural and natural resource sectors, providing robust evidence that price shocks aect con‡ict in opposite directions depending on the factor intensity of the commodity.
928 citations
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TL;DR: This paper showed that differences in physical capital and educational attainment can only partially explain the variation in output per worker, and that a large amount of variation in the level of the Solow residual across countries is driven by differences in institutions and government policies.
Abstract: Output per worker varies enormously across countries. Why? On an accounting basis, our analysis shows that differences in physical capital and educational attainment can only partially explain the variation in output per worker--we find a large amount of variation in the level of the Solow residual across countries. At a deeper level, we document that the differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which we call social infrastructure. We treat social infrastructure as endogenous, determined historically by location and other factors captured in part by language.
7,208 citations
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TL;DR: Collier and Hoeffler as discussed by the authors compare two contrasting motivations for rebellion: greed and grievance, and show that many rebellions are linked to the capture of resources (such as diamonds in Angola and Sierra Leone, drugs in Colombia, and timber in Cambodia).
Abstract: Of the 27 major armed conflicts that occurred in 1999, all but two took place within national boundaries. As an impediment to development, internal rebellion especially hurts the world's poorest countries. What motivates civil wars? Greed or grievance? Collier and Hoeffler compare two contrasting motivations for rebellion: greed and grievance. Most rebellions are ostensibly in pursuit of a cause, supported by a narrative of grievance. But since grievance assuagement through rebellion is a public good that a government will not supply, economists predict such rebellions would be rare. Empirically, many rebellions appear to be linked to the capture of resources (such as diamonds in Angola and Sierra Leone, drugs in Colombia, and timber in Cambodia). Collier and Hoeffler set up a simple rational choice model of greed-rebellion and contrast its predictions with those of a simple grievance model. Some countries return to conflict repeatedly. Are they conflict-prone or is there a feedback effect whereby conflict generates grievance, which in turn generates further conflict? The authors show why such a feedback effect might be present in both greed-motivated and grievance rebellions. The authors' results contrast with conventional beliefs about the causes of conflict. A stylized version of conventional beliefs would be that grievance begets conflict, which begets grievance, which begets further conflict. With such a model, the only point at which to intervene is to reduce the level of objective grievance. Collier and Hoeffler's model suggests that what actually happens is that opportunities for predation (controlling primary commodity exports) cause conflict and the grievances this generates induce dias-poras to finance further conflict. The point of policy intervention here is to reduce the absolute and relative attraction of primary commodity predation and to reduce the ability of diasporas to fund rebel movements. This paper - a product of the Development Research Group - is part of a larger effort in the group to study civil war and criminal violence. For more on this effort, go to www.worldbank.org/research/conflict. Paul Collier may be contacted at pcollier@worldbank.org.
5,349 citations
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TL;DR: The authors compared more direct measures of the institutional environment with both the instability proxies used by Barro (1991) and the Gastil indices, by comparing their effects both on growth and private investment.
Abstract: This paper compares more direct measures of the institutional environment with both the instability proxies used by Barro (1991) and the Gastil indices, by comparing their effects both on growth and private investment. The results provide substantial support for the position that the institutional roots of growth and convergence are significant. The marked improvement that these new variables represent over existing proxies also suggests that there are substantial returns to future research into variables that reflect the security of property rights and the efficiency with which states determine economic policies and allocate public goods.
4,981 citations
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TL;DR: The authors showed that countries with a high ratio of natural resource exports to GDP tended to have low growth rates during the subsequent period 1971-89, even after controlling for variables found to be important for economic growth, such as initial per capita income, trade policy, government efficiency, investment rates, and other variables.
Abstract: One of the surprising features of modern economic growth is that economies with abundant natural resources have tended to grow less rapidly than natural-resource-scarce economies. In this paper we show that economies with a high ratio of natural resource exports to GDP in 1971 (the base year) tended to have low growth rates during the subsequent period 1971-89. This negative relationship holds true even after controlling for variables found to be important for economic growth, such as initial per capita income, trade policy, government efficiency, investment rates, and other variables. We explore the possible pathways for this negative relationship by studying the cross-country effects of resource endowments on trade policy, bureaucratic efficiency, and other determinants of growth. We also provide a simple theoretical model of endogenous growth that might help to explain the observed negative relationship.
3,511 citations
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TL;DR: The authors showed that there is little direct evidence that omitted geographical or climate variables explain the curse of natural resources, or that there was a bias resulting from some other unobserved growth deterrent.
3,309 citations