The resource curse hypothesis

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The resource curse hypothesis

Political and institutional view:

Beyond the economic explanation of the natural resource curse, the question that matters : why governments in resource rich countries manage their revenues so poorly?.
This question gives role to politics and institutional quality. There exists large literature that supports this view building the political economy of the resource curse puzzle. It has been observed obviously that countries with good institutions and good politicians perform better.

Role of politics:

Governments and political systems represent a crucial channel through which the resource rents may affect economic growth either positively or negatively. Ross (1999)2 gave large importance to the role of politics to explain the resource curse and he divided this explanation into three theories:

Cognitive approach :

This approach suggests that natural resource rents can cause myopic sloth among policy makers. These rents lead to irrational abundance creating a “get-rich-quick mentality” among businessmen and a “boom-and-bust” psychology among policy makers which explains their failure to enhance growth and diversify their economies.
This explanation has already appeared in the history by John Bodin (go back to the introduction of the section).

Societal approach:

The societal theories suggest that booms in natural resources enhance the political leverage of non-state actors to impede the growth and development path. Otherwise, most of these theories argue that the curse of slow growth results from trade barriers which protect the winners of booms.

Statist approach (state-centered explanation):

The statist explanation seems to be hybrid and mixes the cognitive; societal and institutional arguments. It includes the rentier-state concept. This approach suggests that when governments of rentier states earn more revenues from resource exports, they are freed from the need to collect domestic taxes, so that, they fail to build strong economic policies and they become less accountable to the societies they govern.

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Table of contents :

List of tables
List of figures
I. Theoretical review
Chapter introduction
I. 1- The resource curse hypothesis
I. 1-1. Economic explanation
I. 1-1-1.Dutch Disease
1-1-1-a. Gregory model
1-1-1-b. The core model: (Cordon and Neary 1982)
-1- The “Spending effect”
-2- The resource movement effect
1-1-1-c. The monetary effect: S.Edwards(1985)
I. 1-1-2. Procyclicality of fiscal policy
I. 1-1-3. Volatility of commodity prices
I. 1-2 Political and institutional view
I.1-2-1. Role of politics
a-Cognitive approach
b-Societal approach
c-Statist approach (state-centered explanation)
I.1-2-2 Institutional quality
I. 2- Oil price volatility issue
I. 2-1- The causes and effects of oil volatility
I. 2-1-1- The causes
a- Supply and demand for oil (market fundamentals)
b- Behavioral changes
I. 2-1-2 The effects of oil price volatility
a- Macroeconomic volatility
b- Volatility and growth
I. 2-2- Means to reduce volatility effects
I. 2-2-1 Fiscal policy
a- Oil funds
b- Fiscal rules and fiscal responsibility legislations
c- Budgetary oil price
I. 2-2-2 Role of financial development
I. 2-2-3- Role of economic diversification
Chapter conclusion
II. The empirical evidence 
Chapter introduction
II. 1- Evidence on the traditional resource curse conundrum
II.2- Evidence on the volatility channel of the curse
II.3- Issues raised by empirical evidence
Chapter conclusion
III. The econometric study
Chapter introduction
III.1- Oil economics in Algeria
III.1-1- Evolution of the oil sector
III.1-2- Management of oil revenues
III.1-3- Economic growth and oil revenues
III.1-4- The political and institutional environment
III.2- Data and Methodology
III.2-1- Description of the data
III.2-2- Methodology
a- An overview of the OLS estimation method
b- Methodology used in the study
III.3- The empirical results
Chapter conclusion
Conclusion and recommendations


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