natural resources, development and conflict

7/31/2019 Natural Resources, Development and Conflict

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Natural Resources, Development and

Conflict:Channels of Causation and PolicyIntervention

Article by Paul Collier

Presented by:

Ali Saifuddin (8094)


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Introduction

Random distribution of natural resources acrossthe planet

Random distribution leads to unequal outcome

Some countries have few or no valuable resources

Abundance brings opportunity for enhancedincome

Often serves as critical triggers of development


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Unfulfilled economic growth potential

High risk of large scale violent conflict

International community is working on feasiblecollective actions to mitigate the problem

Remedy for a problem, need not address the cause

Unless the cause is not understood, we can have little

confidence in proposed remedies


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The association between Natural

Resources and poor outcomes Association between natural resources and

risk of civil war has been explored through

econometrics and case studies:

Collier and Hofler 1998/2003:

Analyze 54 large scale civil wars from 65-99

Countries with 10-25% of GDP coming from

natural resources hold an increased risk (from 11

to 29%) of a civil war in the subsequent five years


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Natural resources are not the only factorinfluencing the conflict..

Per capita income strongly influences therisk of conflict:

At high levels of per capita income therisk of civil war is negligible with or withoutnatural resources.

Hence, societies such as Norway andAustralia, which are highly dependent uponnatural resource exports but are also rich, do

not face any significant risk coming from


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They can distinguish between initial dependence and

the effect of the world price of the commodity exports

during the conflict.

The advantage being that the world prices are almostentirely external to an individual conflict and very easilyobserved, so it is a particularly reliable causal variable.

Effect of the price depends upon the initial level ofresource exports.

Eg. High level of primary commodity exports of 30% of GDP atstart of conflict a subsequent and sustained increase in worldprice of the export by 10% would extend the duration of conflictby 12%


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Association between natural resource

dependence and disappointing growth

performance is also supported both byeconometric evidence and case studies:

Sachs and Warner (1995):

Finds that natural resources reduce growth.


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Routes from Natural ResourceDependence to Development

ProblemsAuthor suggests six causal mechanisms, relying primarily upon amixture of theory and case study evidence:

1. Rent-seeking of honeypots

Aid an analogy to honeypots

Nevertheless natural resources are more evidentsource of rent than aid

E.g. Fiji and RUF rebel group rent seeking of naturalresources played a substantial part in motivating their

actions is surely unavoidable


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Objectives can change over time

Eg. FARC began as a rural radical political movement,but is now a drugs operation

Eg. Delta region of Nigeria a movement that wasinitially protesting injustice and environmental

degradation has evolved into gang warfare to controlthe right to run protection and kidnapping rackets


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2. Making secessionist movements credible

A variant on the honeypot hypothesis for which there ismuch better evidence is that.. natural resource abundance promotes violentsecession

Just as the distribution of natural resources betweencountries is not equal, so within favored countries somelocations are favored more than others.

People living in the vicinity of the natural resourceendowment have an obvious economic interest in claimingthe resources for themselves to the exclusion of their fellownationals.


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In many situations, natural resources will be

located in regions where some political groups are

already claiming independence. The presence ofnatural resources enables such groups to add acredible economic argument

Eg. Scottish nationalism -1970 and 1974 elections

- At the former election, as in all previous elections, the ScottishNational Party won only a tiny share of the vote and gained only a

single seat in parliament- In the two 1974 elections its vote rose to 30%

- The transforming event that brought about this change was thedramatic rise in world oil price in late 1973 as a result of the YomKippur war

- The oil off the shores of Scotland was suddenly seen as valuable:


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3. Financing rebel groups

A further way in which primary commodities in generaland natural resources in particular can increase the riskof civil war is through their vulnerability to predation byrebel groups who need finance to pursue violence...

Rebellion is usually expensive

The most spectacular examples of natural resourcefunded rebel groups come from diamonds UNITA &

RUF


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4. Detaching the government from theelectorate

A common political economy argument, applied to bothnatural resource revenues and aid, is that by reducingthe need for taxation they also reduce popular scrutiny

of government.

- People are less concerned about misuse of public money if theyhave not been taxed in order to generate it

- The power of this argument depends upon the sophistication ofthe electorate

- Governments that misuse public funds can more easily disguisethe extent of natural resource revenues than they can disguisetaxation


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5. Dutch disease

Dutch disease : the tendency for natural resourceexports to appreciate the real exchange rate andso make the production of other tradable goods

less competitive.

- The response is simply an efficient resource reallocation resources move into the non tradable sector, producing thegoods that the now-richer societydemands but that cannot be supplied through imports

- To be a disease one or other of two additions are commonlyinvoked:

1. The real a reciation is tem orar but that the im lied inter-


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6. Exposure to shocks

The final route by which natural resources, and indeedother primary commodities, can be problematic fordevelopment is due to their exposure of the economyto price shocks.

Large negative shocks tend to produce episodes ofsevere economic contraction which compound thedirect loss of income.

- Such episodes directly increase poverty due to the fall in exportincome

- They also tend to reduce the growth rates of output over themedium term (Collier and Dehn, 2001)

- Over and above the income and out put losses, episodes of rapid


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International Policy Responses tothese Problems

1. RevenueTransparency

Revenue transparency is

useful in several respects:

- It is evidently a necessary input


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2. Scrutiny

Transparency of revenues is itself an input into thescrutiny of expenditures

Scrutiny is predominantly a domestic process: this isbecause citizens and their representatives are thelegitimate beneficiaries of public revenues

While ever scrutiny depends solely upon the complaintsof foreign governments and international agencies it willbe easy for offending governments to deflect theexposure using the tried and tested defensive strategyof nationalism


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3. Commodity Tracking

Commodity tracking has recently been pioneered throughthe Kimberley process for tracking diamonds. The process isstill in its infancy and there is a need to establish howeffective it is.

Primary purpose of commodity tracking is to make it moredifficult for rebel groups to profit from looting valuablenatural resources.

- Eg. UNITA and the RUF have used this as their primary source of revenue

Physical tracking of commodities can usefully be combinedwith information on financial transactions that are the

counterpart of their physical movement


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4. Reduced exposure to shocks

The final route by which natural resources and primaryresources can be problematic is due to its exposure of theeconomy to price shocks.

Severe contractions lead to export losses that ultimatelyaffect the poverty and middle term output.

Positive shocks can also destabilize economic management.


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Are Resource-AbundantEconomies Disadvantaged ?

Article by Kym Anderson


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Introduction

The article states the resource abundance economies haverelatively grown slower than other economies

Possible explanation is declining term and rising

restriction to primary product market abroad.

How the impact of greening of world preference andpolitics on the prospects for resource abundant

economics.


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Why have resource-rich economiesgrown relatively slowly ?

Worlds fastest growing economies are poorlyendowed with natural resources Japan, Hong

Kong and China. These countries are denslypopulated

Slowest growing economies African countries,Argentina, Australia.

One possible explanation for this negative


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Why have resource-richeconomies grown relativelyslowly ? Another often-claimed and related explanation for

growth rate differences is cultural determinism.

Another doomsdayers is that resource-abundanteconomies face continual decline in their terms of trade.

Resource-poor economies have more scope to grow viatechnological catch-up.

exporters of resource-abundant countries face largerprotectionist barriers abroad than do exporters of non-primary products.


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Why have resource-richeconomies grown relatively

slowly ?Deteriorating terms of trade


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More growth-inducing externalities in industry?

More growth inducing externalities associated withmanufacturing industries than with the primaryproduction

Manufacturing are subject to increasing returns

whereas primary production face decreasing returns

Manufacturing is characterized by learning by doing


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More scope for technological catch-up inresource poor economies?

Backward economy are likely to grow faster thenthose who require investment in innovation.

Resource rich here does not refer to aggregateendowment of resources but rather to the ratio ofnatural resources to other resources such as laborand produced capital.


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Ever higher protectionist barriers facingprimary exports?

Resource abundant economies grow less rapidly

because their export face higher protectionistbarriers than do exporters of non primaryproducts

Protectionism against Coal in western Europe andAsia makes Australia and New Zealand feel theirgrowth is being hampered


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Above-average distortions at home?

Hypothesis that resource abundant economies areless open to trade, investment and technology

Internal reasons are higher then the externalfactors limiting the growth.


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Conclusion

The growth in concerns for natural resourceconservation and the environment has the potential

to raise the value of natural resources and therebyenhance the economic prospects of resource-abundant economies. But whether that potential isrealised depends heavily on the policy choices made

by governments. Looking for free-lunch policyoutcomes should be a priority, where the economyand the environment are improved simultaneously.

natural resources, development and conflict

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