GEOG 216 Lecture Notes - Lecture 27: Resource Curse, Dutch Disease, Rent-Seeking
13 Jun 2018
School
Department
Course
Professor
Lecture 24- The Resource Curse & Dutch Disease
Outline
• The paradox of plenty
• Causes of the resource curse
o Income volatility
o Rent-seeking, patronage and living off the land
o Dutch disease
• Avoiding the resource curse
o Norway
o Developing countries
The paradox of plenty
God gave us maize and the devil gave us oil Mexican proverb
• The resource curse
• Symptoms:
o Resource wealth; slow growth; high poverty (although often high
GDP); poor governance; weak states; revolution and conflict
• Economic windfalls
o Boom and bust cycles
o Deindustrialization
o Inflation and overvalued exchange rates
o Withering agricultural sector
find more resources at oneclass.com
find more resources at oneclass.com
Causes of the resource curse
• Resource characteristics
o Point-source (appropriable), you can put a barrier around your
diamonds
o Owned by state
o Low production cost; high value, money you gain value that it’s sold
at – extraction and processing costs – capital depreciation + nominal
rate return profit) is called resource rent or super profit (abnormal
profit), easily controlled by the state
• Rents, not abundance
• Three causes
o Income volatility
o Rent-seeking, patronage and living off the land
o Dutch Disease
Income volatility
• Three causes
o Commodity price variation (varies a lot through time) → gives rise
to a lot of problems when it comes to managing the rent that comes
out of these products
find more resources at oneclass.com
find more resources at oneclass.com
o Rate of extraction tends to vary with the age of the field you are
dealing with. Extractions rates tend to be high at the beginning and
then drop.
o Timing of receipt through infrequent taxes and royalties. Countries
say you dont have to pay anything to the state for so-many years to
encourage exploration. This adds to income volatility.
• Consequences:
o Cycles of economic boom (when prices are high) and bust (when
prices collapse) commonly established with diamonds, gold etc.
o Government spending is cyclical (huge peeks and deep holes) think
of oil debt crisis in Latin America in 1980s)
o Borrowing money during boom times (when prices are high, let the
good times roll, lots of consumption, lots of government borrowing to
build infrastructures, projects (white elephants), very expensive time
in the economy)
o Bust….
144$ a barrel to 35$ a barrel only 5 months later (huge volatility/fluctuations)
Rent seeking, patronage and living off the land
• Economic rents (what happens to the rents, who do they go to and how are
they used?)
• Political economy of rent-seeking (everyone tries to seek out a way to get
in on this, not how could I be a good entrepreneur or what could I invent but
rather how could I enter into the oil game and enjoy certain benefits like
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
The paradox of plenty: the (cid:498)resource curse(cid:499, symptoms, resource wealth; slow growth; high poverty (although often high. Gdp); poor governance; weak states; revolution and conflict: economic windfalls, boom and bust cycles, deindustrialization, inflation and overvalued exchange rates, withering agricultural sector, resource characteristics. Extractions rates tend to be high at the beginning and then drop. say you don(cid:495)t have to pay anything to the state for so-many years to: timing of receipt through infrequent taxes and royalties. 144$ a barrel to 35$ a barrel only 5 months later (huge volatility/fluctuations) In 1960s netherlands saw they had a bunch of gas near their coasts, thought they were going to be rich but really agricultural and manufacturing sectors were taking a hit, they were deindustrializing without realizing it. Paris to be done it was a time of incredible wealth. But then investment made was sunk; you couldn(cid:495)t recuperate or move your town somewhere else.
