15 Jul 2008

The Resource Curse

...is when a resource-rich country suffers underdevelopment. Why? Because its leaders use revenue from the resources to pad their bank accounts instead of provide services to citizens. They can do this because resource revenue allows them to ignore citizens, i.e., no accountablity.

This piece describes a mechanism to bring greater transparency to extraction -- and thus reduce the corruption that makes resource rich countries poor.

The Extractive Industry Transparency Initiative (EITI) that aligns the interest of oil industry firms and citizens of petro-states. The EITI is a voluntary initiative to which extractive industry (such as oil and mineral rich) governments agree to adhere. Under EITI procedures, firms are required to “publish what they pay” policymakers for the right to explore and extract energy or miners. Energy officials, in turn, must record the revenues they receive and entrust an independent administer to compare extractive sales and revenues. And citizens can use these reports to monitor and influence government spending.


The EITI is less than four years old, but already it seems to have helped many participants improve their governance and gradually avoid or reduce the resource curse. In recent work, I performed a preliminary review of governance and human rights statistics for EITI-implementing countries in 2007 and compared their performance to 25 other developing county extractive exporters. Eleven countries were able to improve the business climate (economic growth regulations), and on average they performed better than their non-EITI peers
Bottom Line: Transparency and accountablity are necessary (but not sufficient) for good governance. The EITI is a step in the right direction, a step towards the day that poor citizens of resource-rich countries will benefit from "their" resources.


Jeremy said...

Any countries you can think of for whom surplus water is a curse?

If you're interested in this subject, Paul collier has some wonderful ideas in his book the Bottom Billion and in a recent TedTalk.

David Zetland said...


I'm familiar with the idea of "the surplus curse," which I covered in this post. They are the ones that cannot control their water (e.g., Ethiopia). Collier's got some good ideas -- mostly because he's put his finger on the countries that are REALLY suffering from underdevelopment.

They can benefit from property rights as part of freedom (I am a Sen fan -- freedom before democracy...)

Silas Barta said...

David: Not to derail, but why do you like Sen? I've never understood what people find so great about him. Here are all of his insights:

-Democracies dont have famines. [insert a thousand vague qualifiers]

-In order to do something, you must have the capability to do it, not just the legal permission to, which obviously libertarians totally never realized because they don't care about capabilities whatsoever.

-(Sen's Paradox) Libertarianism is inefficient, because look what happens when people can't waive rights, which is something libertarians allow.

David Zetland said...

Silas, I like his development as freedom POV, i.e., freedom is necessary and sufficient for development. I also like his continued advocacy of hard thinking in development economics and applied work (the human development index).

I haven't thought about the other stuff you cite.

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