Rich Resource Countries and Economic Growth

Rich Resource Countries and Economic Growth Vikram Mashru Why have resource rich economies so frequently failed to achieve sustained economic growth? In the late 20th Century, Sachs and Warner extensively documented the negative correlation between a country’s resource endowment and their rate of economic growth.[1] They focussed on point-source natural resources because they can be easily traded and exploited by others. Their paper built upon previous research leading to the so-called resource curse being widely accepted. However, the explanations of the phenomenon are disputed with the constantly fluctuating prices of natural resources being a possible explanation. In addition to this, other industries could be crowded out by the export-based natural resource industry an appreciation of the real exchange rate could also be problematic. Yet, the quality of a country’s institutions could be a better explanation for low levels of economic growth because they determine the way in which natural resources are exploited and consequently the impact the natural resource shave on the economy as a whole. The revenue brought about by natural resources tends to be extremely volatile because natural resources have a low price elasticity of supply as production cannot be altered easily altered without incurring large costs.[2] Oil prices are particularly variable because they are often affected by political instability, natural disasters and economic downturns. This volatility is problematic because it leads to uncertainty in the country and exposes the country’s economy to changes in the world price in commodities. This problem may be exacerbated if the country has not economically diversified and the majority of a country’s foreign currency comes from exports of natural resources. The fluctuating prices can lead to a risky cycle where the government spends a lot when prices are high, but have to introduce harsh austerity measures when prices drop because they can no longer afford to maintain their expenditure.[3] The unpredictability of the government’s fiscal poli cy may make the country less attractive to foreign investors. A dependence on a volatile primary product has been shown to inversely correlate with investment in education, foreign direct investment and overall economic growth[4]. However, if fluctuating prices were the only cause of the low rates of economic growth there would certainly be periods of significantly higher growth when prices are high. Thus, fluctuating prices alone are not enough to explain the natural resource curse. Dutch disease is a theory that suggests the discovery of resources in a country may lead to a decline in export-oriented industries and particularly the manufacturing sector. The export of natural resources like oil could lead to an appreciation in the real exchange rate because of the increase in demand for the currency.[5] The high exchange rate could harm the manufacturing industry as their exports would consequently be more expensive than before. Thus, the manufacturing sector would be less competitive on the global market and could lead to lower economic growth in the country. The term itself was originally used to describe this process after it happened in the Netherlands after the discovery of natural gas in 1959, but it has since been observed elsewhere.[6] Russia, for example, is one of the largest exporters of natural resources in the world and has experienced an increasing real exchange rate. Oomes and Kalcheva demonstrate that Russia has also displayed the other three maj or signs of Dutch disease including a slowdown of the manufacturing industry, an increase in service sector growth and an increase in wage growth. While this may not be enough to conclusively state that Russia has fallen foul of Dutch disease, it does appear that likely that the country has experienced it to some degree. Furthermore, industries that compete with imports may be adversely affected as the stronger exchange rate would increase the purchasing power of consumers. The country’s labour and capital may be redistributed towards local non-tradeable sectors and the country may then lose out on the benefits of having a strong manufacturing sector such as technological progress and good management.[7] There were significant fears that the artificially high exchange rate from North Sea oil revenue would have this impact in the UK if corrective policies were not enacted.[8] On the other hand, Dutch disease appears to be an inadequate explanation for Nigeria’s poor economic performance because the sustained increase in price of tradable goods in the 1980s and early 1990s did not improve their economic performance and because the decline of the agricultural sector was offset by the growth of the public sector.[9] Furthermore, Norway’s extraction of oil from the early 1970s has hugely improved its economic growth and allowed it to catch up with Denmark and Sweden. Its rapid growth suggests that Dutch disease is not an economic inevitability and that there are other important factors. Larsen argues that Norway’s success where so many other countries have failed is indicative of the superior quality of its pre-existing institutions, an attribute that most primary product dependent countries do not have.[10] Norway’s government explicitly discussed the problems natural resources posed in parliament and used policies to counteract t hese negative impacts. For example, they tried to protect the economy from excessive demand and exchange rate appreciation by establishing a Petroleum Fund abroad and paying back foreign debts.[11] The discovery of natural resources often leads to disputes over the ownership of them and rent-seeking behaviour such as civil wars which may crowd out other beneficial behaviour. Nigeria demonstrates the institutional problems with the discovery of a large pool of natural resources. Corruption and waste has ruined the country and prevented the large quantity of oil in the country from making a positive contribution to the national economy. Conflicts over ownership of oil fields such as the Biafran war of the 1960s and successive military dictatorships have not only disturbed the extraction of oil but have disrupted unrelated economic activity.[12] Moreover, poor institutional quality leads to a lack of trust in government especially when corruption is widespread and widely known about. Multinational corporations respond to problems of corruption by taking part in enclave development where they minimise their activity in the country so that they can avoid all the problems associated with poor institutions. Large firms extract oil from these countries but process it elsewhere, which means that there is little value added in the resource rich country. Consequently, countries like Nigeria are forced to rely on exports of raw materials and there is little value added to commodities in their economies so little profit is made within the country. Overall, it seems that oil is not enough on its own to create economic and civil disturbances, but instead exacerbates pre-existing issues. In the Niger Delta, oil was discovered amidst a backdrop of weak institutions and thus conflicts and exploitation follows.[13] However, part of the prob lem is that the discovery of oil and consequent accumulation of wealth at the top of the political hierarchy, as Birdsall points out, may hinder the development and improvement of institutions that could have otherwise taken place.[14] The explanation for resource rich countries lack of growth is particularly complex. The volatility of raw material prices are in part to blame for this because they lead to uncertainty in the economy and exposes the country to price changes on the global market. This is made worse by the following unpredictability of government fiscal decisions. However, the volatility is not enough to truly understand why these countries have such slow rates of economic growth. The Dutch disease is a slightly better explanation, with the export of raw materials leading to an appreciation in the exchange rate. However, multiple examples like Norway show that Dutch disease can be avoided through careful macroeconomic planning on the part of the government. This demonstrates that the most important explanation is the quality of institutions at the time of resource discovery. If they are weak, like Nigeria’s, natural resources can lead to civil conflict and economic hardship. Yet a country with s trong institutions like Norway allows natural resources to boost prosperity and economic growth. BIBLIOGRAPHY Birdsall, N Subramanian, A. (2004) Saving Iraq From Its Oil. Foreign Affairs 83.4 Larsen, E.R. (2004) Escaping the Resource Curse and the Dutch Disease? Statistics Norway, Research Department Oomes, N. Kalcheva, K. (2007) Diagnosing Dutch Disease: Does Russia have the Symptoms? IMF Working Paper The Dutch Disease (1977) The Economist Sachs, J.D. Warner, A.M. (1995) Natural Resource Abundance and Economic Growth. National Bureau of Economic Research Working Paper Sala-i-Martin, X. Subramanian, A. (2003) Addressing The Natural Resource Curse: An Illustration From Nigeria. National Bureau of Economic Research Ramey, G. Ramey, V.A. (1995) Cross-Country Evidence on the Link Between Volatility and Growth. American Economic Review Watts, M. (2004) Resource Curse? Governmentality, Oil and Power in the Niger Delta, Nigeria. Geopolitics 1 [1] Sachs Warner, Natural Resource Abundance and Economic Growth [2] Oomes Kalcheva, Diagnosing Dutch Disease, p.7 [3] Birdsall Subramanian, Saving Iraq From Its Oil [4] Ramey Ramey, Cross-Country Evidence on the Link Between Volatility and Growth, pp.1138-1151 [5] Oomes Kalcheva, Diagnosing Dutch Disease, p.7 [6] The Economist, The Dutch Disease, pp.82-83 [7] Birdsall Subramanian, Saving Iraq From Its Oil [8] Forsyth Kay, The Economic Implications of North Sea Oil Revenues, p.17 [9] Sala-i-Martin Subramanian, Addressing The Natural Resource Curse, p. 16 [10] Larsen, Escaping the Resource Curse and the Dutch Disease? [11] Larsen, Escaping the Resource Curse and the Dutch Disease? P.13 [12] Sala-i-Martin Subramanian, Addressing The Natural Resource Curse, pp.12-15 [13] Watt, Resource Curse? pp.73-76 [14] Birdsall Subramanian, Saving Iraq From Its Oil

Evaluate the Relative Importance of Domestic and Foreign Affairs in Shaping American Politics in the 1790’s

Evaluate the relative importance of domestic and foreign affairs in shaping American politics in the 1790's The American politics and policy were shaped by both domestic and foreign affairs during the 1790’s, though most of the influence came from domestic affairs. During the run of President Washington, Thomas Jefferson and Alexander Hamilton faced off because of their opposing views of what the government should be like. Hamilton wanted to shape new policies that would improve the economy, but Jefferson felt that one must adhere to anything that the constitution said; strict construction compared to Hamilton’s loose construction. Also, foreign affairs, such as new policies appearing due to the French Revolution and conflicts with Spain became a driving force for shaping American politics. It became very apparent that these affairs had been factors for America’s political success. When Washington was elected as the President in the 1790’s, Alexander Hamilton followed with him. He was soon an influence in most to all domestic affairs, and he used his role as Secretary of Treasury to put in place any plan that he felt was necessary, even if it was controversial. The positive of his plans were that they repaid the debt the United States had collected, but they caused great tension between the North and South. His plan to form a national bank did not sit well with the citizens in America, and it fared even worse with the government leaders. This event seems to be the defining moment that began a split-party government. These two new parties that arose were the Federalist and the Jeffersonian Republicans. They each had different views concerning the Constitution; the Federalist, like Alexander Hamilton, taking the loose construction, and the Jeffersonian Republicans, like Thomas Jefferson, taking the strict construction. The economic changes that were put into place by Hamilton caused many rebellions by the American citizens, and made the government learn the most effective ways to enforce their power of them. This gave the government confidence in their ability to handle their people better than they had years earlier, and they were able to assert their dominance in other forms. The United States domestic affairs escalated as more threatening foreign affairs were on the horizon. The beginning and duration of the French Revolution caused much turmoil in France, but it soon began to affect the United States as well. Tensions between France and America grew so much that war could very well be in the future. Jay’s treaty was an attempt to reconstruct the relationship between the two countries, but along with the XYZ affair, it was also unsuccessful and made the issues even worse. John Adams was now President, and in trying to fix foreign and domestic affairs, institutionalized the Alien and Sedition Acts. This had a great affect on the on foreign and domestic affairs, because the government was now able to determine to position of people in their society. This new act led to the Virginia and Kentucky Resolutions, which were domestic affairs that stated the nullification of such laws as the Alien and Sedition Acts was necessary and recommended because it was unconstitutional. The foreign affairs that were taking place between America and Spain were also affecting the politics in America. The Treaty of Sal Lorenzo gave America absolute enforcement of the boundaries and it gave them access to the Mississippi River. These foreign affairs helped to affect the American politics in that time, and for future generations. Foreign affairs such as policies coming about due to the French Revolution and a strained relationship with Spain affected the shaping of American politics, but domestic affairs seem to have affected them more. The conflicts between Thomas Jefferson and Alexander Hamilton caused many changes in America that are still in place today, and their conflicts are ones that our two parties still face. Though, the government has had much experience in dealing with these problems, and now they can be handled differently than they were in the past.

Essay about The Growth and Development of Ideas on Race

The Growth and Development of Ideas on Race Without examining the past, our views today would be shallow and misleading. In making comparisons it is important to look at aspects of history to provide a more in depth understanding of certain social phenomenon. As comparisons are made, ideas emerge which can raise our levels of such understanding. In this way, by examining the meaning of race two hundred years ago, we can discover that the concept of ‘race’ has evolved; it has changed over time and remains ever changing. Concepts like ‘race’ demand us to study broader social structures and their interaction with smaller social life; in order to do this, we must understand history. Before†¦show more content†¦It is not the same within other countries even at the same time, and as a result of this, it must be put into some historical and comparative context. The earliest African soldier came to England in 210AD, over two thousand years ago. There is further evidence of Africans one thousand years ago, but after this, records seem to dry up. Five hundred years later, their presence was once again documented, as free men who came to trade with English merchants. By the 1560s the Slave Trade had begun. This was a highly integrated global system operating in Africa, Europe and the Americas, involving the forced transportation of millions of Africans to the Americas. There was also an increased African presence in Britain, which continued to grow into the 1570s, which was made up mainly of Africans working as household servants, prostitutes and court entertainers. At this time, the African population was still relatively small in Britain, but by 1650 the numbers had begun to steadily rise. The slaves were also used as labour on plantations which produced sugar, cotton and tobacco, which developed into huge commercial activities, of which m ost of the profit flowed back to Europe. 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The Importance Of Safety For The People Of Your Wonderful...

Dear Council, We appreciate the opportunity to provide safety for the people of your wonderful town. Identity theft is a very serious matter and ruins millions of lives every year. Identity theft in its most basic form is the wrongful acquisition of a person’s private identifying records generally for financial purposes. There are many ways for these criminals to get ahold of one’s personal records and we wish your citizens to be prepared for them all. Some of these schemes may include technological methods and some may not. Though there are more schemes that include obtaining personal information through technology, people should also be aware of how to properly dispose of their records, such as bills or medical information. In order to help avoid any unwanted situation, you must first completely understand the situation. Identity theft, as previously stated is when a criminal gets ahold of someone’s personal information and generally uses it to get into their b ank accounts and steal money. Some of them get into your accounts and steal your money because they are drug or alcohol addicts and need a way to feed their addiction. However, there are many other reasons for why a criminal would want to get into your personal records and accounts. Sometimes, people can use identity theft for some sort of sick and twisted revenge method. For example, one man was upset at his ex-girlfriend and so he hacked into their personal information, stole photos of her and her daughter,Show MoreRelatedInspiring in the Article, Woman in Combat Zone by Leslie Marmon810 Words   |  4 Pagescontinuing on. Some might think because she was ready to defend herself she was ready to start the fight, but honestly she was ready to end one. With her gun on her lap she sat there and waited for the stranger in the truck to make his move. 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