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Natural Resource Abundance and Economic Growth
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.
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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
Cites background from "Natural Resource Abundance and Econ..."
...If the rebel force is too small, when it attacks the choke points, the government forces which it encounters will turn from defense to attack....
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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
Cites background from "Natural Resource Abundance and Econ..."
...GDP70 OPEN is an interaction variable where GDP70 is the log of GDP per-capita in 1970 and OPEN is the shorter name for `share of years opena from Sachs and Warner (1995)....
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...These are: a variable measuring the outward orientation of economic policy from Sachs and Warner (1995); an interaction variable between this openness variable and initial income (to allow for faster convergence of open economies); and natural resource intensity measured by natural resource exports…...
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...Sachs and Warner (1995, 1999), and Sachs (1996) identify x with tradedmanufacturing activities....
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...…of the evidence, Sachs and Warner (1997) show regression evidence of the curse of natural resources with as many as nine additional regressors, and Sachs and Warner (1995) show regression evidence for the curse after controlling for popular variables favored by four other empirical growth studies....
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Posted Content•
TL;DR: In this article, instead of analyzing the extreme bounds of the estimates of the coefficient of a particular variable, the authors analyze the entire distribution and find that a substantial number of variables can be found to be strongly related to growth.
Abstract: In this paper I try to move away from the Extreme Bounds method of identifying "robust" empirical relations in the economic growth literature. Instead of analyzing the extreme bounds of the estimates of the coefficient of a particular variable, I analyze the entire distribution. My claim in this paper is that, if we do this, the picture emerging from the empirical growth literature is not the pessimistic "Nothing is Robust" that we get with the extreme bound analysis. Instead, we find that a substantial number of variables can be found to be strongly related to growth.
2,770 citations
Book•
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TL;DR: On the Political by Chantal Mouffe, a globally recognized political author, presents a timely account of the current state of democracy, affording readers the most relevant and up-to-date information.
Abstract: Since September 11th, we frequently hear that political differences should be put aside: the real struggle is between good and evil. What does this mean for political and social life? Is there a 'Third Way' beyond left and right, and if so, should we fear or welcome it? This thought-provoking book by Chantal Mouffe, a globally recognized political author, presents a timely account of the current state of democracy, affording readers the most relevant and up-to-date information. Arguing that liberal 'third way thinking' ignores fundamental, conflicting aspects of human nature, Mouffe states that, far from expanding democracy, globalization is undermining the combative and radical heart of democratic life. Going back first to Aristotle, she identifies the historical origins of the political and reflects on the Enlightenment, and the social contract, arguing that in spite of its good intentions, it levelled the radical core of political life. Contemporary examples, including the Iraq war, racism and the rise of the far right, are used to illustrate and support her theory that far from combating extremism, the quest for consensus politics undermines the ability to challenge it. These case studies are also highly effective points of reference for student revision. On the Political is a stimulating argument about the future of politics and addresses the most fundamental aspects of democracy that will aid further study.
2,476 citations
TL;DR: The authors surveys the recent empirical literature on economic growth, starting with a discussion of stylized facts, data problems, and statistical methods and concludes that efficiency has grown at different rates across countries, casting doubt on neoclassical models in which technology is a public good.
Abstract: Why do growth rates differ? This paper surveys the recent empirical literature on economic growth, starting with a discussion of stylized facts, data problems, and statistical methods. Six research questions are emphasized, drawing on growth and convergence research. In answering these questions, the paper argues that efficiency has grown at different rates across countries, casting doubt on neoclassical models in which technology is a public good. The latter half of the paper rounds up a variety of findings before providing answers to all six questions, including a short summary of how differences in growth rates arise.
2,396 citations
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TL;DR: The authors examined whether the Solow growth model is consistent with the international variation in the standard of living, and they showed that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data.
Abstract: This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts. This paper takes Robert Solow seriously. In his classic 1956 article Solow proposed that we begin the study of economic growth by assuming a standard neoclassical production function with decreasing returns to capital. Taking the rates of saving and population growth as exogenous, he showed that these two vari- ables determine the steady-state level of income per capita. Be- cause saving and population growth rates vary across countries, different countries reach different steady states. Solow's model gives simple testable predictions about how these variables influ- ence the steady-state level of income. The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country. This paper argues that the predictions of the Solow model are, to a first approximation, consistent with the evidence. Examining recently available data for a large set of countries, we find that saving and population growth affect income in the directions that Solow predicted. Moreover, more than half of the cross-country variation in income per capita can be explained by these two variables alone. Yet all is not right for the Solow model. Although the model correctly predicts the directions of the effects of saving and
14,402 citations
TL;DR: In this paper, the authors examined a cross-section of about 80 countries for the period 1960-89 and found that various measures of financial development are strongly associated with both current and later rates of economic growth.
Abstract: Joseph Schumpeter argued in 1911 that the services provided by financial intermediaries - mobilizing savings, evaluating projects, managing risk, monitoring managers, and facilitating transactions -stimulate technological innovation and economic development. The authors present evidence that supports this view. Examining a cross-section of about 80 countries for the period 1960-89, they find that various measures of financial development are strongly associated with both current and later rates of economic growth. Each measure has shortcomings but all tell the same story: finance matters. They present three main findings, which are robust to many specification tests: The average level of financial development for 1960-89 is very strongly associated with growth for the period. Financial development precedes growth. For example, financial depth in 1960 (the ratio of broad money to GDP) is positively and significantly related to real per capita GDP growth over the next 30 years even after controlling for a variety of country-specific characteristics and policy indicators. Financial development is positively associated with both investment rate and the efficiency with which economies use capital. Much work remains to be done, but the data are consistent with Schumpeter's view that the services provided by financial intermediaries stimulate long-run growth.
8,204 citations
"Natural Resource Abundance and Econ..." refers background in this paper
...Source: King and Levine [1993]. KLLSEC Log of years of secondary education in the population 1970 1989....
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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
"Natural Resource Abundance and Econ..." refers background in this paper
...This result is based on the institutional . quality measures in Knack and Keefer, 1994 , and is presented in Sachs and . Warner, 1997a,b, Table 11 . However, since the alternative institutional quality measures are themselves highly positively correlated across countries, the data do not allow us to be very precise about exactly which aspects of institutional quality are related to natural resource abundance, or in turn, exactly which are ......
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01 Jan 1995
TL;DR: The World Trade Organization (WTO) was established by agreement of more than 120 economies, with almost all the rest eager to join as rapidly as possible as mentioned in this paper, and the agreement included a codification of basic principles governing trade in goods and services.
Abstract: WHEN T H E BROOKINGS Panel on Economic Activity began in 1970, the world economy roughly accorded with the idea of three distinct economic systems: a capitalist first world, a socialist second world, and a developing third world which aimed for a middle way between the first two. The third world was characterized not only by its low levels of per capita GDP, but also by a distinctive economic system that assigned the state sector the predominant role in industrialization, although not the monopoly on industrial ownership as in the socialist economies. The years between 1970 and 1995, and especially the last decade, have witnessed the most remarkable institutional harmonization and economic integration among nations in world history. While economic integration was increasing throughout the 1970s and 1980s, the extent of integration has come sharply into focus only since the collapse of communism in 1989. In 1995 one dominant global economic system is emerging. The common set of institutions is exemplified by the new World Trade Organization (WTO), which was established by agreement of more than 120 economies, with almost all the rest eager to join as rapidly as possible. Part of the new trade agreement involves a codification of basic principles governing trade in goods and services. Similarly, the International Monetary Fund (IMF) now boasts nearly universal membership, with member countries pledged to basic principles of currency convertibility. Most programs of economic reform now underway in the developing world and in the post-communist world have as their strategic aim the
4,840 citations