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Applied Mathematics 1413 Lecture Notes - Resource Curse, Sub-Saharan Africa, The American Economic Review

Applied Mathematics
Course Code
AMATH 1413
Eric Ball

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Terry Lynn Karl. The Paradox of Plenty: Oil Booms andPetro-States. Berkeley:
University of California Press, 1997,342 pp.
Jeffrey D. Sachs and Andrew M. Warner. Natural Resource Abundance and Eco
nomic Growth, Development Discussion Paper no. 517a. Cambridge: Har
vard Institute for International Development, 1995,49 pp.
D. Michael Shafer. Winners and Losers: How Sectors Shape the
Prospects of States. Ithaca, N.Y.: Cornell University Press, 1994,272 pp.
It is the devil's excrement. We are drowning in the devils excrement.
?Juan Pablo P?rez
Alfonso, Founder OPEC
We are in part to blame, but this is the curse of being born with a copper spoon
in our mouths.
?Kenneth Kaunday President of Zambia
All in all, I
wish we had discovered water.
?Sheik Ahmed Yamani, Oil minister, Saudi Arabia
does a state's natural-resource wealth influence its economic
development? For the past fifty years, versions of this question
have figured prominently in debates over dependency theory, economic
dualism, a proposed New International Economic Order, East Asia's
success, and Africa's collapse. Since the late 1980s, economists and po
litical scientists have produced a
flood of new research that bears on this
question. There is now strong evidence that states with abundant re
source wealth perform less well than their resource-poor counterparts,
but there is little agreement on why this occurs.
At first glance, the role of resource wealth in economic development
looks like a question of dwindling importance. In 1970,80.4 percent of
the developing world's export earnings came from primary commodi
* For their generous comments on earlier drafts of this article, I am grateful to Chris Achen,
Pradeep Chhibber, Richard Doner, Robert Franzese, Suzi Kerr, Miriam Lowi, Robert Pahre, Jeffrey
Vincent, Jennifer Widner, and two anonymous reviewers.
World Politics 51 (January
1999), 297-322

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ties; by 1993 it
had dropped to 34.2 percent. But most of this drop
caused by the fast growth of manufactured exports in
East Asia and a
handful of Latin American states. Three-quarters of the states in sub
Saharan Africa and two-thirds of those in Latin America, the
Caribbean, North Africa, and the Middle East still depend on primary
commodities for at least half of their export income.1 For these coun
tries the "resource curse" is an urgent puzzle.
In this article I review efforts by both economists and political scien
tists to explain how the export of minimally processed natural resources,
including hard rock minerals, petroleum, timber, and agricultural com
modities, influences economic growth.21 first summarize the evidence
for a resource curse and review new research on the four most promi
nent economic explanations for the curse: a decline in the terms of trade
for primary commodities, the instability of international commodity
markets, the poor economic linkages between resource and nonresource
sectors, and an ailment commonly known as the "Dutch Disease."
I then review efforts to explain the political aspects of the resource
curse?why resource-exporting governments seem to manage their
economies so poorly. Most explanations fall into one of three categories:
cognitive explanations, which contend that resource booms produce a
type of short-sightedness among policymakers; societal explanations,
which argue that resource exports tend to empower sectors, classes, or
interest groups that favor growth-impeding policies; and state-centered
explanations?including recent books by D. Michael Shafer and Terry
Lynn Karl?which contend that resource booms tend to weaken state
In the third and final section, I discuss two other explanations for the
curse that
might be fruitfully explored, but which have received little
attention. The first explanation would attribute the curse to state
owned enterprises, which typically govern resource extraction in devel
oping states. The second suggests that a state's inability to enforce
property rights may directly or indirectly lead to a resource curse.
United Nations Conference on Trade and Development (UNCTAD), Commodity Yearbook 1995
(New York United Nations, 1995).
21 have deliberately omitted the extensive literature on the sociological impact of resource extraction
on local communities. Important recent works include: Bradford Barham, Stephen G. Bunker, and
Dennis O'Hearn, eds., States, Firms, and Raw Materials: The World Economy and Ecology of
(Madison: University of
Wisconsin Press, 1994); Stephen G. Bunker, Underdeveloping the
Amazon: Ex
traction, Unequal Exchange, and the
Failure of the
Modern State (Urbana: University of Illinois Press,
1985); Scott Frickel and
William R. Freudenburg, "Mining the Past: Historical Context and the
Changing Implications of Natural Resource Extraction," Social Problems 43 (November 1996); and
Nancy Lee Peluso, Rich Forests, Poor People: Resource Control and Resistance in
Java (Berkeley: Univer
sity of California Press, 1992).

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From the 1950s to the 1970s, the question of resource wealth was at
the center of debates between mainstream development scholars and
their Marxist and non-Marxist critics. Since then, the study of resource
wealth and development has grown less ideological and more empiri
cal, and the quality of the empirical work has improved sharply.
with the ideological stakes lowered, research on this topic has grown
lamentably fragmented: economists and political scientists seem to be
unaware of each others' contributions, and political scientists are often
divided by their area specialties. One purpose of this article is to better
acquaint scholars with each others' work, and to show how recent stud
ies from a
wide range of subfields can cast light on the special problems
of resource exporters.
A second aim is to compare the approaches of economists and polit
ical scientists to this issue. Since the 1950s economists have continued
to investigate a small number of powerful explanations for the resource
curse, employing better data sets and increasingly sophisticated statisti
cal tools. Some of their findings are incomplete and unsatisfying; still,
they contain significant results.
Political scientists, by contrast, have produced scores of explanations
for the resource curse and an equal number of case studies, yet have
rarely tried to test their theories with either well-selected comparative
cases or large-N data sets. Their reluctance to test almost certainly re
flects the obstacles that political scientists commonly face in the devel
oping world, where data can be poor, missing, or prohibitively costly to
obtain. It may also reflect, however, a disregard for the practice of hy
pothesis testing. Whatever its origins, the absence of hypothesis test
ing has had two lamentable consequences: there has been little
accumulation of replicable findings on the policy failures of resource ex
porters; and absent the need to render their theories testable, many
scholars have neglected tasks that would help refine and sharpen their
arguments?carefully defining their variables, specifying the domain of
relevant cases to which their arguments apply, and framing their causal
arguments in generalizable, and falsifiable, terms. The ultimate result
has been a widening gap between our improved understanding of the
economic predicament and our still weak understanding of the political
predicament of states that rely heavily on commodity exports.
There a Resource Curse?
A casual glance at growth rates across the developing world, with stag
nation in resource-rich Africa and rapid growth in resource-poor East
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