The Natural Resource Curse

Methods IIData Presentation

September 21, 2007Tom 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 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

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

The Natural Resource Curse – Importance

Wealth without development

The Natural Resource Curse – Importance *Inequality

The Natural Resource Curse – Importance *Conflict

The Natural Resource Curse – Importance *Source

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

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

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 [-]

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

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

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

Data 3

Time span 1970 – present

Observations All relevant developing countries at start of the

1970s Focus on worst and best performers