Resource curse

Resource curse is a theory of economics, multi-fingered and mining resource-related economic and social issues. Abundant natural resources, economic development could be a curse rather than a blessing, most of the slower growth in countries rich in natural resources than those countries with scarce resources. Economists attributed the deteriorating terms of trade, the Dutch disease or insufficient investment in human capital, mainly caused by over-reliance on some relatively abundant resources.

The so-called “resource curse” refers to the long-term growth situation, those abundant natural resources, the economy of resource products dominate growth in developing countries rather than those in resource-poor countries is much lower; although resource abundance States may due to rising commodity prices and resources to achieve short-term economic growth, but will eventually come to a standstill, abundant natural resources eventually become a “winner’s curse” (winner’s curse).

Economic growth and development problems caused by widespread attention since, economists and economic growth has been committed to exploring various factors and conditions, that is a source of growing problems. Or natural endowments of natural resources, physical capital, technological progress, as well as public order and legal beliefs and values, have been revealed and placed in a prominent position. Among them, the natural resources as a matter of production activities necessary inputs, an important material foundation upon which economic development, resources are relatively abundant countries generally contains a greater potential for development. Since the development of modern economic history shows that natural resources do the initial accumulation of national wealth of a country plays a very crucial role in the rapid industrialization, such as the United States, Australia, Canada and Scandinavia, with its abundant natural resources are inseparable

Since the 1980s, more and more resource-abundant countries into the trap of the fact that growth has caused economists thought. Empirical data show that from a longer time perspective, the abundant resources of the country’s economic growth rate is slow, even stagnant. 1965–1998 worldwide in low and middle-income countries with an annual per capita GNP of 2.2% annually, while the OPEC (OPEC) countries over the same period fell by 1.3%. In 65 countries with relatively abundant resources, only four countries (Indonesia, Malaysia, Thailand, Botswana) GNP per capita annual growth rate of 4% (1970-1998), and some East Asian economies with scarce resources (China Hong Kong, Singapore, South Korea, China Taiwan), economic growth has exceeded the average level of developed countries (World Bank, 2000). In different parts of China, we can find a very similar situation.

The proposed resource curse
Since the mid-1980s, a new endogenous growth theory for the Solow growth theory “convergence process” and “catch-up hypothesis” questioned a large number of empirical studies began to compare the differences in national economic growth. Some economists have found abundant natural resources of the country’s economic growth rate is disappointing start to explore why. In 1993, Auty ore producing countries in the study of economic development first proposed the “resource curse” (Resource Curse) this notion that abundance of resources to economic growth in some countries is not sufficient favorable conditions, but is a limit. After this, Sachs and Warner (1995,1997,2001) continuously published three articles on the “resource curse” This groundbreaking empirical hypothesis.

They selected a sample of 95 developing countries, estimated that since 1970 – an annual growth rate of GDP of these countries in 1989 and found that only two resource abundant country annual growth rate of over 2%. Regression test showed, with between natural resource endowment and economic growth significantly negative correlation between resource-based products (agricultural products, minerals and fuel) exports accounted for the proportion of GNP each increased by 16%, the economic growth rate will decline by 1%. Even more explanatory variables included in the regression equation, such as institutional arrangements, regional effects, price volatility and other negative correlation still exists.

Resource curse produce theoretical point of view [1]
A non-institutional arrangement views

(A) human capital point of view

Mutshed (2001) and so that: Countries in the resource curse, and a small part of the regime was obsessed with resource rent elite control, resource revenue is mainly used for imports of consumer goods, some of the productive investment has been concentrated in the field of domestic consumer goods, some countries even a considerable proportion of resource benefits for the purchase of military equipment, and the domestic infrastructure, education and other positive externalities of public goods and quasi-public goods and little investment. The reason is that infrastructure and human capital formation for the future infrastructure and human capital gains from the discounted value of the investment to produce a low income have a longer lag, and control of the state elite. Gylfason (2001) empirical findings, abundant national resources of its high investment in education is generally low proportion of GDP, secondary school enrollment rate is lower than the world average level of human capital accumulation as also less attention. Therefore, the lack of human capital in these countries is a key cause of the resource curse, and that modern economic growth theory Romer model, the conclusion is the same model Lucas.

(B) the economic point of view type

Murshed (2001) in Sachs (1999) and other resources will be the basis of a point source into the type of economy based economy (point-source economes) and decentralized economy (diffused economics). Point Source economy refers to the country’s economic industry Well concentrated bird a few resource companies or territory? Decentralized economy refers to the economic structure of the country has diversified. Empirical studies have shown that long-term rapid growth of the national economy in East Asia are all the more decentralized economy, resource curse Countries such as Latin America, Africa and the Middle East are all point-oriented economy.

He therefore believed that the nature of the resource curse is not that abundance of resources, but rather a resource type of economy. If a country’s economy solely dependent on the production and export of a few resources, such as oil or minerals, etc. These industrial output value accounted for a large share of GDP: the formation of a so-called “point source Economy” (point-souce economies), so, a single resource such as oil and minerals will lead to production, capital, technology and human resources to its focus, the result is the area of social resources already disadvantaged such as agriculture, processing industry and further weakening the development of basic destroyed. Once the resources are long-term trend is the disappearance of prosperity, resource and non-resource industries are suffering from recession and stagnant economic growth.

(Iii) a resource conflict viewpoint

Addison (2002), Olsson (2003), Englebert & ROIl (2003,2004) put forward, those conflict management system is weak, income inequality hit countries, resources in the face of sudden prosperity, social cause long-term accumulation of dissatisfaction (gdeVance) and greed (greed) outbreak increases the risk of countries into conflict. The root cause of discontent is economic factors, the economic interests of different groups and sectors of the government to provide differentiated cause, especially when the government can not provide universal security and minimal public goods for the public when they were discriminated against will rely on relatives ties to obtain security guarantees and support, in order to form a capital racial (ethnic capital) based “dissatisfaction” class or group. Greed is the desire for more wealth, is another motivation for conflict. Abundant natural resources or resource value products to improve all levels of society so that the expected revenue or groups increased, reducing the cost of poor people to participate in the war. In dissatisfaction and greed driven, in order to obtain the rent of natural resources, the use of crime, corrosion between different interest groups, and even to fight for control of resources by war. In order to ensure the regime and the government, it will be a substantial increase in military spending, and mopping other expenditures. When the resource rents become substantial “bonus”, the violence can not be stopped. The result is the cost of resource revenue to become parties to the conflict, undermining the country’s economic base, the growth becomes difficult to achieve the dream.

Second, the institutional arrangements viewpoint

Research appearing resource curse National institutional arrangements are the most important recent academic research. The so-called system means that actors in the political, economic and other activities in the system of rules that must be followed. The results show that many of the good political and economic system is the key to economic growth. Two “good” institutional arrangements have been able to promote long-term economic growth, social welfare is that it maximizes the benefits of prosperity resources to invest in infrastructure and human capital. Such government-controlled country will have to rely on market forces rather than state subsidies competitive industry. The “bad” system of the birth of rent-seeking, lobbying and non-competitive industries. What is a good political and economic system?

Campos & Nugent (1999) believe that the political and economic system to measure the quality standards are established on the basis of whether a certain system of government with the production of features, including: whether the executive accountable, public facilities is perfect, the spirit of the rule of law, civilians can participate in policy making, policy makers whether the program open and transparent, and whether the strengthening of property rights and contracts and so on. Government productivity functional level is usually indirectly to four quantifiable indicators of a country’s human development index, unit capital gains, child morbidity and the adult literacy rate is measured. These academic years overall conclusion is: Where there are national resource curse, there is a bad institutional arrangements.

(A) a mechanism to cause bad system “resource curse” on the system led mechanism “resource curse”, there are several explanations.

1. The concept of entrepreneurship mismatch (Mehlum, 2002; Mehlunh Moene & Torvik, 2006). The idea that entrepreneurs can not only be used for production, can also be used to plunder. Entrepreneurship with specific areas in which, depending on the comparative benefits and costs which activities. Abundant natural resource rents easily available allows corruption, plunder and rent-seeking more attractive. The more the rule of law is weak, the lack of national spirit of the contract, this incentive is more intense. At the national social reconstruction phase transition or post-conflict, but also prone to a large area of criminal plunder. When the crime rate rises, vested interests have long-lasting benefits for future, more inclined to pay big bucks to build security facilities, rather than earnings between sectors, between industry, the rational allocation between current and future, the result is so that the proceeds from the more decentralized resources, even waste.

2. Political Incentive Concept (Robinson, Torvik & Verder, 2005). The idea that bad system error-prone political incentives. In developing countries appear Resource Curse, abundant resources or resources, rising prices increase the value of power, so that the incumbent be able to get more resource rents. Politicians in order to obtain rights or seek re-election, will tend to over-extraction of resources, rational allocation; revenue resources can not be in between industrial, investment and consumption, a reasonable allocation, resulting in long-term economic stagnation. This has exposed the politicians and voters natural resources future low-income discount rate, in fact, reflects the drawback of these state institutions, such as the supervision mechanism is not perfect, opaque decision-making, information asymmetry and many other aspects.

3. The concept of power Union (Lane & Tornell, 1996) view, bad system easily lead to a country’s political and economic power appears the ruling coalition countries. The purpose is to maximize the power of the Union or drawn from other parts of the transfer of the rental community, this shift is the general production of other organizations and sectors of society at the expense of the economy. Prosperity and unexpected revenue resources will stimulate the transfer of power coalition received over rent appetite, these organizations become more greedy, asking for a greater share of national income. The consequence of this is greed marginal revenue production and decreasing the rate of return on capital, the growth rate decreased.

4. Induced dictatorship viewpoint (Ross, 2001). The idea that those with at least a lower mineral wealth, especially oil resources are not country towards democracy, or democracy scores in the index. Long-lasting dictatorship reasons: First, the economic wealth does not transfer to the field of social and cultural progress, wealth did not become the material basis for social progress; the second is the suppression effect. Mineral and oil-rich countries tend to spend more money, build a higher level of military and internal security equipment, in order to suppress internal cynical; the third is the impact of rent-seeking. Revenue from mineral resources are used to bribe public, so the public silence, approval authority. In these countries, government provision of public goods is a major source of funding rather than the resource rent tax, tax is generally low. Because the tax is usually stressful national introduction of democratic institutions. Therefore, these countries sustained dictatorship is due to abundant natural resources induced formation. Mandatory authoritarian regime, predatory, short-sighted and long-term interests of the people ignore the resource curse is the emergence of the national system has been criticized.

5. The concept of large-scale rent-seeking (MurShed, 2004). The idea that the system is easy to breed bad economic life of the large-scale rent-seeking. In a bad system conditions, those in power only concern is to develop and adjust the system, the purpose is to achieve a favorable position in the game of resource rents, achieve maximize rents, rather than maximizing benefits society as a whole. Private capital due to rising rental costs and reduce investment. Rent-seeking process waste, so that the dispersion of income resources, reducing productive investment, and ultimately hindered economic growth.

6. The concept of transaction costs (Dixit, 2001). The idea that bad system will inevitably lead to increased transaction costs. In accordance with the transaction cost theory, the relationship between the institutional, political and economic are: system is the endogenous product of the political process, in turn, political activities are governed by the system; the system is directly related to the economy is the system design will increase or decrease in economic activity the transaction costs. In political and economic activities, transaction costs increase is due to the mutual action of opportunism and breach of trust. Reduce transaction costs due to an increase institutional continuity and certainty of results. In bad institutional environment, difficult to form standardized systems so that all around the ruling party are able to perform even the most suitable system. Because of differences in political and economic interests and different expectations, it served as the former regime who have violated established and contrary to the wishes of the principal incentive, prone to adverse selection and moral hazard, reduce system trustworthiness. Although the state’s unique problems of adverse selection and moral hazard are not developing or resources involved in the transaction cost theory and high abundance, but in poor countries institutional environment, institutional changes are more casual and common, and tend toward more bad direction, a large number of breach of contract, fraud and dishonest government. Economic activity caused by bad system in transaction costs, risk and uncertainty increased, so that the investment microeconomic incentives decrease. To maximize the economic benefits for the purposes of those in power prefer to resource benefits (including grab resource rent) stored in foreign banks; private investors prefer the proceeds transferred to other countries relatively less risky than to stay at home. This abundant resource benefits not stimulate the country’s economic growth, consumption and investment.
1. The export model determinism (Isham, 2002). The idea that bad system resource curse countries is determined by the export mode. The so-called export model refers to constitute the bulk of a country’s exports, a simple model is divided into primary products and industrial product model types. The basic idea is: a country’s export pattern is formed in a long time, it reflects a country’s factor endowments and comparative advantage situation. If a country exports some models from large gains, it will be formed in the country to strengthen this export model of excitation system. East Asia such as Japan, Singapore, South Korea, China Taiwan region and other countries and regions from the bulk export of industrial products in earnings, this income East Asian countries encourage the formation of the government and the productive system; some Latin American and African countries to benefit from the export of primary products, incentives formed is a predatory government and institutions. Among these, the point-source of economic and coffee – systems cocoa exporting countries the most predatory, such a system of economic growth counterproductive. Similarly is Murshed (2004) resource endowments decision said. Murshed considered period after the first oil shock, the type of natural resources is the key to the formation of a bad system, because higher oil prices, a substantial increase in export earnings, resulting in some countries greed and corruption of the system, become Auty & Gelb (2001) said predatory state.

2. The historical experience of determinism (Acemog1u, 2001). The idea that bad system in some countries is the historical experience of the national decision. Some countries modern predatory system is a continuation of the previous century colonial model. They have a colonial past experience country divided into two groups: The first group is similar to Findlay & Lundahl (1994) now called colonial residence (regions of recent settlement), which is called the New World immigrants living in Europe, such as the United States, Canada, Australia and so on. The second group of eleven tropical developing countries of the Third World today. In the first group of countries during the colonial period to establish a good system of property rights and the legal system in particular, and in the second group of countries, deeply rooted in the colonial period on the establishment of predatory mode.

Obviously, the latter model in some parts of the world is very common, such as in Africa and Latin America. In these countries, due to the predatory colonial government, leading to bad system appears and extends to colonial countries after independence, appears Hall & Jones (1999) said the economy predatory balance.

3. Income inequality – economic type determinism (Sokoloff & Engeman, 2000; Easterly, 2001). The idea that income inequality and economic type of interactions, some countries appear bad system. Most Latin American countries into the resource curse has two basic characteristics: First, the Gini coefficient chronically high, far exceeding the warning level by the World Bank; the second is economic type typical point source economy. Gini coefficient chronically high, indicates a problem of wealth distribution and redistribution system, the deeper reason may be the control of state power elite they are more concerned about their income share, rather than rational allocation of wealth in society . Point Source model of economic distribution of wealth is the wealth of the few countries to master the political and economic elites concentrate resources, making the country the Gini coefficient rises; decentralized economy mode will reduce the share of income distribution elite, ordinary people to increase revenue level, so that the national Gini coefficient decreases. Therefore, the elites in the design and change the system more willing to develop an environment conducive to economic development point source of institutional arrangements to maintain the point-oriented economy, mutual benefit conspiracy to form alliance, the use of the coercive power of the State to extract rent. With respect to the point-oriented economy, the more decentralized economy is not conducive to the elite extract rent. Worse, when different interest groups compete for the rent, institutional arrangements will be more yuan order, meaning recklessly cause lazy and wasteful output, than a single elite conspiracy of more serious consequences.

4. The political elite cybernetics (Easterly, 2001; Bourguignon & Verdier, 2000). The idea that some of the resource curse appears predatory system of the country these arrangements may be interested in the country’s political elites should do. Because the elite know that public investment in education will promote growth and common interests, but also to further generate demand from oligarchy decentralization, decentralization is the result of selfish elites forced redistribution of income, resulting from the power elite group shifted outwards. Of course, the oligarchy most reluctant to redistribute income, is not willing to transfer of power by the elite groups outside. Therefore, in those point sources and planting mineral resources abundant economy countries, most likely to form long-term national institutional arrangements by a few ultra-rich elite control.
Resource Curse and Institutional Arrangement
The so-called “resource curse” is not innate endowments of natural magic, nor is it accompanied with the resource endowment and to the world of magic. Resource-based economy of underdevelopment, and the emergence of related issues, not the resource itself, but with the resource development and related institutional arrangements. It is inappropriate resource wealth of resources and governance, only led to the so-called resource curse problem. The key word, the curse is: either the wealth in the wrong place, or wealth is the wrong place, instead of resource wealth in itself a problem.

For resource abundant country or region, facing the sudden advent of resource prosperity and wealth of resources, the lack of appropriate institutional preparation and effective supervision, so that other factors Handmaid resources. Original economic balance is broken, and formed a resource development as a driving force in leading resource wealth for development of new balance. Institutional norms and governance constraints are the most fundamental way to prevent resources raging. Resource-based economy was the result of the phenomenon, fundamentally speaking, is a serious lack of resources and property rights trading system, resource development, resource income distribution system and human resource development systems so that resources become the master of the power of economic activity, the deterioration of the trade conditions and eco-industrial development, distorts the flow direction and the configuration of economic factors, inhibit technological innovation, leading the resource curse phenomenon. Economic growth depends on natural resources and human behavior, in which human behavior is more important. The only requirement for capital is not growing, and, if provided the capital but did not provide an effective framework for the use of capital, then capital will be wasted. Resource-based economic phenomenon of the problem is that, in the sudden prosperity of resource industries, before rolling in wealth of resources, there is no time to establish appropriate and effective framework for the rational use of capital, capital is not only a large amount of wasted, but also with to the many other issues.
Path to get rid of the resource curse choices
20 years of research shows that the “resource curse” universal phenomenon on a global scale, its causes and mechanism of action are not the same generation, in some countries, may still be a number of reasons synergies, therefore, get rid of “resource curse” Information should also be varied, summary views put forward by scholars, mainly in the following aspects.

1. establish and improve the property rights system. R.Hausmann & R.Rigobon (2004) and so that, perfect system of property rights can be a clear relationship between specific resources belonging to eliminate the exploitation of resources in the disorder, opportunism, to avoid the “tragedy of the commons”; further resource owners in intergenerational between the rational allocation of mining resources and improve resource efficiency.

2. The reform of the political system, the establishment of democratic, accountable government. Democratic political system allows countries to establish and improve formal or informal, widely recognized system of rules and the social contract, rules governing use of these resources, and between different social strata, between resources and production industries, consumer goods and public infrastructure areas of infrastructure and human capital formation rational allocation; inhibition of viable social contract opportunistic behavior such as large-scale theft of resource rents, to quell public discontent is crucial (Findlay & Lundahl, 1994). Democratic political system spawned responsible government can promote the rational design of policies to prevent excessive monopoly resources in the field of rent-seeking and corruption (Grossman & Helpmanl, 1991). Democratic, civilian society more prone to civilian society and the emergence of civilian entrepreneurs, compared with those countries that are part of a small elite obsessed with resource rent controlled, civil society is more likely to support public financial base and human capital formation (Murshed, 2001).

3. The development of decentralized and diversified economic model. According to the successful experience of East Asia, the developing countries should vigorously develop the manufacturing sector, especially the private decentralized manufacturing rather than point-source manufacturing industry, since the latter tend to be capital intensive, require public assistance and are generally non-trade only for domestic consumption, neither competitive nor sustainable (Murshed, 2001). The private manufacturing sector, as Baldwin (1956) pointed out, in the early stages of development will have a simple, labor-intensive manufacturing sector demand, these industries can then become export industries, which will gradually improve manufacturing products loop, key to this is the point-source resource sector gains and nurture the manufacturing sector linked with a return of resources to improve the level of public facilities, human capital formation, if nascent manufacturing industry is competitive, then the resource boom will future growth and sustainable development provides a strong stimulation.

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