Environmental Engineering Reference
In-Depth Information
Guinea and Venezuela - Wunder (2003) maintains that the resource curse is particularly
relevant for oil-producing tropical countries. In these countries, the 'Dutch disease' e
ect
of the discovery of new reserves or oil price increases caused the oil and non-traded
sectors of the economy to expand at the expense of non-oil trade sectors. In tropical devel-
oping countries, such as the eight countries examined by Wunder, the key non-oil trade
sectors are typically agriculture,
ff
sheries, forestry and non-oil mining, which are likely to
stagnate as a result of the rising terms of trade from the oil boom.
4
fi
Hausmann and
Rigobon (2002) show that if a country has a su
ciently large non-resource tradable
sector, relative prices can be stable, even when a commodity boom in the resource sector
generates signi
cant volatility in the demand for non-tradables. However, when the non-
resource tradable sector disappears, prices in the economy become much more volatile,
mainly because Dutch-disease-induced shocks to the demand for non-tradables will not
be accommodated by movements in the allocation of labor but instead by expenditure-
switching. The ine
fi
nancial markets in the country further reinforces this
impact, especially as the presence of bankruptcy costs makes interest rates dependent on
relative price volatility. These two e
ciency of
fi
ff
ects interact, causing the economy to specialize
ine
ciently away from non-resource tradables: the less it produces of them, the greater
the volatility of relative prices, and the higher the interest rate the sector faces, causing it
to shrink even further until it disappears. An increase in resource income will therefore
lead to specialization in the resource sector, higher interest rates and a lower level of
capital and output in the non-tradable sector, ultimately causing a large and permanent
decline in welfare.
Auty (2001) also emphasizes that di
ff
erent types of natural resource endowments may
have di
erent impacts on the economic performance of a country. In particular, he dis-
tinguishes between the potential e
ff
ff
ects of point resources (e.g. mineral and energy
resources) and di
use resources (e.g. cropland). Some studies have sought to distinguish
natural resource endowments in this way, and have concluded that countries endowed
with abundant point resources tend to grow more slowly or be more susceptible to the
'Dutch disease' impacts of a resource commodity boom (Bulte et al., 2005; Leite and
Weidmann, 1999; Stijns, 2006; Wunder, 2003). Others question whether the resource curse
hypothesis is valid, even for countries endowed mainly with energy and mineral resources
(Davis, 1995; Manzano and Rigobon, 2001). For instance, Manzano and Rigobon (2001)
re-examine the period of analysis of Sachs and colleagues in the 1970s and 1980s and
conclude that the poor performance of countries highly dependent on primary product
exports is less likely the result of the 'resource curse' than of 'debt overhang'.
Despite some compelling evidence in favor of a 'resource curse' arising from a com-
modity price boom, many recent studies suggest that the 'Dutch disease' and other eco-
nomic impacts of the resource curse cannot be explained adequately without also
examining political-economy factors, in particular the existence of policy and institu-
tional failures that lead to myopic decision-making, fail to control rent-seeking behavior
by resource users and weaken the political and legal institutions necessary to foster long-
run growth (Ascher, 1999; Auty, 1994; 1997; Baland and Francois, 2000; Broad, 1995;
Bulte et al., 2005; Gylfason, 2001; Karl, 1997; Lane and Tornell, 1996; Leite and
Weidmann, 1999; Ross, 1999; Stevens, 2003; Tornell and Lane, 1998; 1999; Mehlum et al.,
2006; Torvik, 2002).
5
The encouragement of rent-seeking behavior has received the most
attention of late (Ascher, 1999; Gylfason, 2001; Mehlum et al., 2006; Tornell and Lane,
ff
