Development perspectives - natural resources

Question 1

what has Africas growth been like

Answer 1

negative growth rate before 2000

• 2000-2019 = african growth boom
• fuelled by high global commodity prices
• limited structural transformation
• employment towards services rather than manufacturing

Question 2

Sachs and Warner 2001

Answer 2

the resource curse

Question 3

what is the resource curse

Answer 3

global negative correlation between share of exports of natural resources and GDP growth

• countries that export more natural resources - have lower GDP growth

Question 4

what are types of natural resources

Answer 4

1. petroleum
2. natural gas minerals
3. gold, diamonds

Question 5

what does the Heckscher-ohlin relate to africa

Answer 5

• countries will export the good that uses intensively the factor of production that the country is relatively well endowed with
• if endowed with L, cheaper L, will export commodity that uses is intensive in labour - price of c increased
• Africa will export what they are naturally endowed with = natural resources

Question 6

why does Africa export natural resources

Answer 6

countries that are resource rich will specialise in resources
- export natural resources
- import manufactured goods

Question 7

what are the 3 channels that mean that
specializing in natural resources is harmful for GDP growth

Answer 7

1. secular trends= LR decreasing trends in commodity prices
2. volatility = commodity price volatility
3. structural transformation = specilisation delays development of manufacturing sector

Question 8

what is the secular trend theory

Answer 8

• when GDP increases
• demand for agriculture doesnt increase as fast as demand for manufacturing goods
• the relative price of A goods decrease compared to M
• low price elasticity of demand = when price of A falls demand increases are weak
• no increase in revenue from traded commodities

Question 9

what is evidence for the secular trend

Answer 9

Cuddington 1991 = most commodities prices are trendless

• no evidence for secular trends = cant say that decreasing trends in all commodity prices = why natural resource specialisation has lead to low growth

Question 10

what is the volatility theory

Answer 10

• commodity prices are volatile - regardless if no decreasing trend
• because of ridgities in production of commodities markets cant clear by increasing supply - can only clear with price changes

Question 11

why is terms of trade volatility bad

Answer 11

• contribute to economic instability
• sudden changes in X and M prices disrupt economic planning and investment decisions
• discourages investment
• lack of investment explains why low economic growth?

Question 12

what is evidence for volatility

Answer 12

• Blattman 2007 = ToT volatility does correlate with lower growth
• volatility = low levels of investment = low growth

against:
- how has east asia escaped this trap - are there policies?

Question 13

what is the structural transformation theory

Answer 13

• manufacturing = learning by doing = increase productivity
• Rodrick = formal manufacturing exhibits unconditional convergence in productivity
• LR - good for country to specialise in M because of unconditional convergence in productivity
• natural resources doesnt have producivity gains as manufacturing
• need to subsidise African countries to start M sector developing

Question 14

what is the evidence for structural transformation

Answer 14

• evidence that Africa is deindustrialising
• no evidence that this is the case bacuse of specialisation in commodities
• could be a factor because specialisation in natural resources has not allowed M sector to develop

Question 15

how is political economy related to the resource curse

Answer 15

• the relationship between reliance on resources and GDP growth only works for countries with weak institutions
• good institutions - dont have the resource curse

Question 16

in what 2 ways would natural resources affect development through political economy

Answer 16

1. monopolising power
2. threat of conflict

Question 17

what is monopolising power

Answer 17

• extractive institutions over extract
• fast depletion in resources
• bad for development

Question 18

what is threat of conflict

Answer 18

• natural resources increase chances of conflict under extractive institution
• rents and uncertainty over distribution = conflict

Question 19

Berman
what is the satellite evidence of
natural resources relationship with conflict in Africa

positive shock in mineral prices

Answer 19

• evidence of exact location where mines are = violent events occur
• when positive shocks in mineral prices = increased likelihood of conflict close to mines

Question 20

negative shock in mineral prices

Answer 20

• even fall in commodity prices spark conflict
• increases probability of civil war

Question 21

how do negative shocks and positive shocks cause conflicy

Answer 21

negative = conflict over sharing decreased size of rents

positive = conflict over sharing new resources

Question 22

why does conflict only arise in poor institution states

Answer 22

• because of uncertainty is sharing of rents
• low enforcement of rules
• increased militia attacks?
• demand for protection is worsening state capacity