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The Natural Resource Curse

The Natural Resource Curse. Methods II Data Presentation September 21, 2007 Tom Dugan. Research Question. Problem Developing countries that are rich in point source natural resources (diamonds, oil, etc.) exhibit a tendency to grow slowly General Question

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The Natural Resource Curse

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  1. The Natural Resource Curse Methods II Data Presentation September 21, 2007 Tom Dugan

  2. Research Question • Problem • Developing countries that are rich in point source natural resources (diamonds, oil, etc.) exhibit a tendency to grow slowly • General Question • What about these types of natural resources hinders developing countries from achieving sustainable development • Specific Question • How have certain countries (Botswana, Norway, etc.) been able to escape the Natural Resource Curse

  3. Hypothesis • The abundance of point source natural resources in developing countries has a negative effect on their growth rates • Levels of taxation, general savings rates, investment in human capital, and institutional capacity are the intermediary links

  4. The Natural Resource Curse – Importance • Wealth without development

  5. The Natural Resource Curse – Importance *Inequality

  6. The Natural Resource Curse – Importance *Conflict

  7. The Natural Resource Curse – Importance *Source

  8. The Natural Resource Curse – Importance • A relevant and counterintuitive issue • The abundance of point source natural resources should not hinder a country’s ability to achieve sustainable development • Disparities and inequalities across nations is an important issue • To better understand the intermediary links between natural resources and growth in developing countries

  9. The Natural Resource Curse – Importance • Natural Resources ceteris paribus cannot be disadvantageous • There exist intermediary links through which an abundance of natural resources has a negative effect on growth

  10. Previous Theory • Resource rich developing countries exhibit a tendency to grow more slowly • Sources (independent variables) • Resource abundance [-] • Institutional Capacity – corruption [-] • Taxation – incentives for people to organize and develop society [+] • General Savings – foresight of government to set aside resource wealth [+] • *Political Business Cycles – pressure of rulers to spend resource wealth if it will help them stay in office [-]

  11. Method • Regression • Equation • Economic Growth = B0 – B1[Natural Resource Abundance] – B2 [Corruption] + B3[General Savings] + B4[Taxation] – B5[PBC] +B6[Infrastructure and Human Capital Investment] + E

  12. Data 1 • Worldwide Governance Indicators, Civil War, & Transparency International • Based on a long-standing research program of the World Bank, the Kaufmann-Kraay-Mastruzzi Worldwide Governance Indicators capture six key dimensions of governance (Voice & Accountability, Political Stability and Lack of Violence, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption) between 1996 and present. Sometimes referred to as the "KK", "KKZ" or "KKM" indicators, they measure the quality of governance in well over 200 countries, based on close to 40 data sources produced by over 30 different organizations worldwide and are updated on an annual basis since 2002. • Sources • http://info.worldbank.org/governance/wgi2007/pdf/c196.pdf • http://www.transparency.org/ • International Country Risk Guide (ICRG) – sold data

  13. Data 2 • Economic Growth • http://pwt.econ.upenn.edu/ (Penn World Tables) • http://www.ggdc.net/index-dseries.html (Groningen Growth & Development Center) • Maddison Tables • http://www.imf.org/external/data.htm (International Monetary Fund) • World Bank’s World Development Indicators • General Savings & Gross Investment • World Bank’s World Development Indicators • Resource Abundance • http://www.eia.doe.gov/emeu/cabs/index.html (Energy Information Administration) • World Bank’s World Development Indicators • http://www.iea.org/Textbase/stats/index.asp (International Energy Agency) • http://unstats.un.org/unsd/energy/default.htm (United Nations Energy Statistics Yearbook – purchase) • Taxation • IMF’s Government Finance Statistics Yearbook • World Bank’s World Development Report • http://www.oecd.org/document/62/0,3343,en_2825_293564_2345918_1_1_1_1,00.html • Political Business Cycles • Multiparty Competition, Founding Elections and Political Business Cycles in Africa

  14. Data 3 • Time span • 1970 – present • Observations • All relevant developing countries at start of the 1970s • Focus on worst and best performers

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