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It is widely believed that natural mineral resources are desirable. However there is growing evidence that this may not always be the case. Indeed, it seems that natural assets can distort the economy to such a degree that the benefit actually becomes a curse. In Sustaining Development in Mineral Economies, Richard Auty highlights these drawbacks and the devastating effect they can have on developing economies. With reference to six ore-exporters (viz. Peru, Bolivia, Chile, Jamaica, Zambia and Papua New Guinea) he outlines how things can go badly wrong. He particularly stresses the need to avo

This ARI addresses the analytical and empirical links between resource extraction, governance and development, with a focus on the resource-curse thesis. The rent curse is rooted in policy failure, which the theory of rent cycling attributes to the impact of rent on elite incentives and also on development trajectory. The paper provides some examples of conditions that have facilitated this process in the context of Sub-Saharan Africa. The so-called resource curse is part of a broader rent curse that can be triggered by regulatory rent and foreign aid (geopolitical rent) as well as by natural resource rent. Although resource-driven growth challenges macro management due in part to commodity price volatility, the policies required to limit adverse impacts such as the Dutch disease effects are well known. Consequently, the rent curse is rooted in policy failure, which the theory of rent cycling attributes to the impact of rent on elite incentives and also the development trajectory. The theory argues that high rent incentivises the elite to deploy rent through patronage channels for immediate personal enrichment, but this represses markets and distorts the economy, which lowers investment efficiency and triggers a growth collapse that is protracted because rent recipients resist economic reform. The risk of the economy falling into this 'staple trap' development trajectory increases in the presence of point source resources (notably minerals), statist policies, ethnic tension and democracy that is youthful. This implies that initial conditions were unpropitious for most African countries (especially the mineral economies) at independence because they were typically ethnically-mixed, resource-rich, new democracies with a predilection for fashionable state control. Most African economies did experience protracted growth collapses from the 1970s but some, like the Ivory Coast and Kenya collapsed later than most. Just two economies, Botswana and Mauritius, evaded the curse. Botswana's conditions appear unique but Mauritius's pursuit of a dual-track growth strategy offers a useful model for other African governments.

La debilidad de las instituciones es identificada por investigaciones recientes como la principal causa del bajo rendimiento de las economías de los países en desarrollo. Pero las instituciones de los países de bajo ingreso, más que moldear los incentivos políticos, son un reflejo de estos últimos. Por consiguiente, el presente documento analiza el modo en que se esbozan dichos incentivos políticos a través de los ingresos basados en las materias primas. Se centra en los flujos de la renta derivada de dichos productos, como vínculo fundamental entre la economía y la política, y se basa en casos concretos a efectos de seguir la trayectoria de aquéllos (mientras que los estudios estadísticos toman la renta como una caja negra). Dichos casos se fundamentan en la teoría del ciclo de la renta, que postula que: (1) con rentas elevadas los incentivos estatales se desvían de la creación de riqueza hacia un ciclo de "clientelismo político" que corrompe la economía, reduce la eficacia de la inversión y ocasiona un colapso en el crecimiento; (2) la recuperación de un colapso es más lenta debido a la inercia del ciclo de la renta; y (3) las repercusiones negativas de las rentas elevadas quedan intensificadas cuando la renta se encuentra (a) concentrada en los Gobiernos (tal y como ocurre con la minería), (b) destinada a una ideología estatalista o (c) asociada a la diversidad étnica. El estudio utiliza el exitoso ciclo de la renta en Botsuana para analizar los motivos de su fracaso en Zambia, Nigeria y Angola. No sólo atribuye la exitosa gestión de un amplio y concentrado caudal de ingresos de Botsuana a la homogeneidad étnica y al rechazo de políticas estatalistas, sino también a sus incentivos por la prudencia debidos a su dependencia particularmente precaria en lo que respecta a los recursos minerales, así como a la imprevista estabilidad de los precios de los diamantes. Por el contrario, el despreocupado Gobierno de Zambia distribuyó los ingresos derivados del cobre a través de una estrategia de desarrollo estatalista que en el plazo de una década minó con fatales consecuencias la resistencia de la economía frente a los choques económicos. Nigeria dedicó sus crecientes ingresos petroleros a mitigar los conflictos étnicos y, por consiguiente, aplicó un excesivo intervencionismo estatal y debilitó la economía. Por último, Angola quebrantó su economía a través de su planificación centralista. Los conflictos étnicos aminoraron así la esperanza de vida de las elites e impulsó la captación de ingresos a expensas de la creación de riqueza. Las vacilantes recuperaciones de Zambia y Nigeria indican que incluso en el seno de las democracias se requiere una estrategia política complementaria si se pretende superar la inercia del ciclo de la renta a través de reforma económicas.

Historically, small economies, especially resource-rich ones, underperformed on average relative to their larger counterparts. Small island economies appear still more disadvantaged due to remoteness from both markets and agglomeration economies. Yet a comparison of two small island economies with similar initial conditions other than their mineral endowment suggests that policy outweighs size, isolation and resource endowment in determining economic performance. Resource-poor Mauritius adopted an unfashionable policy of export manufacturing that systematically eliminated surplus labour, which drove economic diversification that sustained rapid GDP growth and political maturation. Like most resource-rich economies, Trinidad and Tobago pursued policies that absorbed rent too rapidly, which impeded diversification and created an illusory prosperity vulnerable to collapse.

This paper conceptualises foreign aid as a geopolitical form of rent in order to help distinguish the conditions under which aid is detrimental to sustained economic recovery from those where it is beneficial. Foreign aid shares with natural resource rent and contrived (i.e., government monopoly) rent the property of being a large revenue stream that is detached from the economic activity that generates it, and elicits political contests for its capture. Rent-driven models suggest such contests have two adverse effects: (i) they deflect government incentives into rent-channelling at the expense of promoting wealth creation; and (ii) the resulting political allocation of the rent distorts the economy and precipitates a growth collapse, which is protracted. In this context, the three principal causes of aid failure identified in the literature (corruption, a poor policy environment and Dutch disease effects) are all symptoms of the destabilizing impact of rent streams on immature political economies. Consequently, the deployment of foreign aid to revive collapsed economies runs the risk of perpetuating rent-seeking and thereby postponing essential economic restructuring. This paper compares the varied impacts of aid on the development trajectories of Mauritania, Kenya and Mozambique. It argues that successful aid deployment requires: recognition that aid modalities differentiate aid's effectiveness; stronger public accountability; and the construction of a cohesive pro-reform political constituency. The paper proposes a dual track strategy as a politically practical means of deploying geopolitical rent to restructure distorted economies. – Africa ; aid ; rent ; resource curse ; economic development

Rents tend to be relatively high in developing countries and also very fungible, so that differences in the scale of the rent and in its distribution among economic agents profoundly affect the nature of the political state and the development trajectory. This paper identifies two basic trajectories to a high-income democracy linked to the scale and deployment of rents. Low-rent countries tend to engender developmental political states that competitively diversify the economy and sustain rapid per capita GDP (PCGDP) growth, which strengthens three key sanctions against anti-social governance (political accountability, social capital and the rule of law) to achieve endogenous democratization that is incremental. In contrast, rent-rich countries are likely to experience a slower and more erratic transition. This is because high rents tend to nurture non-developmental (predatory) political states whose deployment of the rent locks the economy into a staple trap, which carries a high risk of a growth collapse. The events presaging a growth collapse weaken sanctions against anti-social governance. However, a growth collapse may abruptly trigger democracy if exogenous factors are favourable, although such a change is likely to prove unstable and prone to regression. Very preliminary tests of the link between PCGDP growth and sanctions against antisocial governance suggest that social capital and law strengthen as predicted by the models for low-rent countries, but political accountability lags. Rent-rich countries exhibit the expected weaker link between PCGDP growth and democratization, an outcome consistent with a more erratic transition towards a high-income democracy.

Autocracies tend to be more successful than democracies in deploying natural resource rent. This renders democratic Botswana's success an anomaly, which Collier and Hoeffler (2006) attribute to strong checks and balances. This chapter assesses this thesis by comparing rent deployment since the 1960s in democratic Botswana with that in democratic Venezuela and in Indonesia's autocracy under Suharto. It draws on Rent‐cycling theory, which posits that the higher the ratio of rent/GDP the more likely it is that the political state will pursue rent distribution at the expense of wealth creation; so that rent is cycled through patronage channels at the expense of markets; and, consequently, the economy is distorted. This increases its vulnerability to external shocks and a collapse in growth. The chapter reaches four conclusions. First, a critical determinant of Rent‐cycling outcomes is the strength of the incentives for the elite to prioritise wealth creation over rent distribution. Low rent confers such incentives, as do a rent stream that is precarious (Botswana) and a perception of rent exhaustion (Indonesia). Second, effective institutions reflect rather than mould them wealth‐creating incentives. Patronage‐driven rent cycling tends to corrode institutions, whereas market‐channelled rent tends to consolidate them. Third, few governments manage to pursue all four key policies required for effective rent cycling. Finally, Rent‐cycling impacts are cumulative and negative circles are difficult to arrest.

This article explains why resource-rich countries tend to spawn predatory political states that distort the economy & create four of Collier's conditions for civil strife: a growth collapse, low educational attainment, a large cohort of unemployed young males, & high resource dependence. Yet, the article also shows that these conditions characterize the resource-rich countries as a group, & most have avoided civil strife. The second part of the study therefore identifies the specific properties of natural resources associated with conflict, ie, socioeconomic linkages, the ratio of commodity value to weight, & relative location. However, this manifestation of the resource curse, like others, is not a deterministic phenomenon so that domestic & global policies can limit resource-driven conflict. 7 Tables. Adapted from the source document.