Lecture 2: Geography Flashcards
Where is poverty in the world concentrated?
Africa, South Asia, and Central America
Hausmann: 2 reasons why some countries are “doomed” to not develop
If they are tropical (1.5% slower growth, 7 years lower life expectancy) and landlocked (0.6% slower growth)
5 reasons why being tropical and landlocked limits development
- Transportation and coordination costs limit trade and globalization (no ports, trade routes through other countries)
- Tropical climate limits agricultural and labor productivity
- Burden of tropical disease reduces growth by 1% point
- Current ‘Eurasion’ crops, animals and technologies cannot easily be transferred to tropical contexts (different climate)
- Vulnerability to natural disasters damages infrastructure (destroyed multiple times a year) and causes conflict over scarce resources
5 reasons why geography isn’t in itself enough to explain why some countries are less developed than others
- Some tropical/landlocked countries have developed (Singapore, Botswana, Switzerland)
- There are local variations in development for countries with very similar geography (North vs. South Korea, Mauritius and Madagascar)
- Differences in crops, animals, and technologies have been eradicated by trade (= lack of convergence)
- Today’s wealthy countries have not always been wealthy, as wealthy countries used to be tropical = reversal of fortunes
- Political choices matter
Resource curse
Natural resources do not help development, it hurts it. Negative correlation between growth and natural resources
5 economic effects of natural resources on development
- Prebisch-Singer hypothesis: Commodity prices decline relative to manufactured goods over time, making exports worth less and less
- Commodity prices are volatile so there is no steady stream of income for infrastructure and social investments
- No spillovers to the rest of the economy as natural resources don’t require a lot of people and extraction sites are build by foreigners
- Dutch disease (selling commodities pushes up exchange rate, harming other exports) -> exporting becomes uncompetitive
- Male-dominated mining areas create gendered risks and inequality (increase in HIV, violence against women)
Prebisch-Singer hypothesis
Commodity prices decline relative to manufactured goods over time, making exports worth less and less, and making countries relying on natural resources poorer and poorer
Is the resource curse that bad?
The resource curse can be mitigated and managed with careful government action such as stabilization funds and diversification, as the curve has started to turn positive
Definition: Rents
Incomes ‘above normal’, e.g. compared to the cost of production
Where are rents unusually high?
Central and Sub-Saharan Africa, parts of South-East Asia
Political effects of having natural resources
- Myopia: short-sightedness in spending money, rents used to buy support for regime
- Corruption: powerful interest groups lobby to keep rents
- Authoritarianism: Leaders are more secure, and transition to democracy is less likely
- Rentier state: weaker institutions, lower taxes and thus no social contract
- Conflict: extortion and fighting for resource control
2 cases of countries that beat the resource curse
Norway (already had strong democratic institutions when oil was discovered) and Botswana (rents managed by elites from pre-colonial era)
Under that 3 conditions do natural resources harm development?
- When they generate large, state-controlled rents
- When resources are controlled by nationalized firms
- When institutions are weak already