Geog 322- Oct 23, 12
Staples Trap –
- countries rich in natural resources specialize in resources and get stuck.
- Import knowledge of the staple is a large expense.
- branch plants and external control
- global, not local linkages
- debt overhang, transfer pricing
Why do they get trapped?
- not making own decisions, some one else making decisions from great
distance- Multi national corporations- MNC’s
- money, power concentrated where “decisions” are made- location of decision
maker- US city for a resource in pnom penh, Thailand. Toronto and Calgary
are other decision making centers.
- capital equipment- made in country or imported?
- ownership structure and which owners have control
- administrative pricing, where subsidiary company sells to bigger company-
convenient non market transaction done by contract
- Enclaves set up to link outsides more than inside
- corporations run major pieces of the country, by which can control country,
such as by establishing Shah’s- who took commands
eg. Banana Republic- Guatemala and Honduras
Dutch disease- traps when resource price rises- eg . oil
regional overdependence on a single industry.
- high returns and high wages in one sector draw capital and labor from other
- other industries and exports atrophy
- Niger delta- most polluted, hazardous environment due to oil industry
- discovery of natural gas in Netherlands- resulted in fall off in agriculture – loss of
-one sector booms, causing loss in other sectors.
Distortion in exchange rates
- exchange rates rise
- raise of Canadian $ due to rise in oil? Did it destroy Ottawa auto industry?
Results- yes- currency due to Dutch disease- expansion of oil- Increase in currency:
due to petro currency-40%; other reasons- 60%, US $ drops. Can look at who is
going shopping where (Canadians now heading to states) to see whose currency is
- benefits transporters, retailers, real estate- cheap condos , roads, building- quick
development=untrained workers, cheaply done Corruption
lots of people=lots of need, country has to output money very quickly- Saudi, Qatar
took time to process energy boom, thus economy doing well
Mexico, Algeria- got increase in $ in oil, distributed by state- state took profits and
distributed $ to petro class-upper middle class. This changed consumption, starting
wars and revolutions- Iran- Shah’s were fundamentalists, wealthy show off’s-
thrown out by people