Lecture 8: Deep Drivers of Development

Question 1

Dutch Disease

Answer 1

global demand for resource increases national exchange rate –> other export products from resource country become less competitive

Question 2

Crowding Out

Answer 2

investment highly concentrated in resource sector –> other sectors are neglected –> low level of diversification –> high vulnerability to price shocks in resource

Question 3

Resource Curse

Answer 3

High levels of resource dependence associated with slower economic growth

Question 4

why do resource rents fuel conflicts?

Answer 4

greed induces (violent) power grabs

Question 5

why do resource windfalls erode institutions

Answer 5

easy profits lead to rent-seeking and corruption –> ‘predatory’ economy.

Question 6

‘new’ resource curse hypothesis

Answer 6

resource windfalls are a blessing for countries with (reasonably) strong institutions, but a curse for poorly governed ones

Question 7

Political version of resource curse hypothesis:

Answer 7

resource windfalls in democracies do not undermine governance, but cause further slides in autocracies

Question 8

indirect rule during colonial period

Answer 8

often implies alliances between appointed local leaders and the colonial authorities –> local communities and their traditional leaders feel betrayed as the colonial system does not grant security