Tuesday, February 2, 2010

There Is No Resource Curse

. Tuesday, February 2, 2010

So says Adam Martin, guest-blogging at Aid Watch:

New research argues that empirical work on the Curse suffers from two interrelated problems. First, it uses dependence (the share of GDP from that resource) and calls it abundance (the stock of a resource in the ground). But dependence in turn depends on institutional quality—if you have sound institutions, natural resources take their place along other industries. If not, natural resources will by default constitute a large share of GDP because poor institutions stifle an advanced division of labor. When you look at cross-sectional data using dependence as a proxy for abundance, it will look like natural resources compromise institutional quality.

That reliance on cross-sectional data is the second major problem. The Curse story does not claim that Nigeria is Britain plus oil, but rather that Nigeria is less democratic than Nigeria would be in the absence of oil. One way to get around this problem is to test whether oil makes country X less democratic using panel data with fixed country effects. That’s fancy econometric speak for taking into account other factors that might make country X more or less democratic—its history, institutions, culture, etc. Fixed effects also allow testing a corollary of the Curse known as the “First Law of Petropolitics”: as oil prices go up, oil-rich autocrats crack down on democracy even more.

Martin highlights, and links to, some of that new research at the link.

There are still fundamental questions at play: if poor institutions are to blame (as alleged by some of that new research and much old research too), that still doesn't tell us why some places have poorer institutional development than others. IR theory offers a few potential explanations:

1. Structural factors make conflict more likely in some places than others. Sometimes this leads to actual conflict, other times the potential for conflict retards the development of a more institutionalized, liberal social order that can encourage more division of labor. Either way, the kinds of institutions that can facilitate development never take root, so development is perpetually stunted.

2. The notion of dependence immediately raises the specter of "dependency theory," according to which LDCs become dependent on their natural resources. Not on the resources themselves, but rather on the technology needed to procure and commoditize those resources. This technology comes from richer states, in whose interests it is to keep LDCs in a downtrodden state and thus keep profiting from them. So LDCs cannot improve their status by participating in the global economy until they are somewhat self-sufficient. These theories were much in vogue in the mid-20th century, but fell out of favor following the rapid development of export-biased economies in Asia and elsewhere and the continued stagnation of isolated economies.

3. Good, old-fashioned, power politics. Those who have it tend to keep it by taking control of lucrative industries, using the proceeds to enrich and insulate themselves from political competition.

Emmanuel recently discussed some of these issues in the context of Nigeria. My take? There is still a lot of work to be done in understanding institutional development and if/how the international community can encourage it.


There Is No Resource Curse
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