Beyond the Resource Curse

Beyond the Resource Curse

Brenda Shaffer
Taleh Ziyadov
Copyright Date: 2012
Pages: 512
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  • Book Info
    Beyond the Resource Curse
    Book Description:

    When countries discover that they possess large deposits of oil and natural gas, the news is usually welcome. Yet, paradoxically, if they rely on their wealth of natural resources, they often set down a path of poor economic performance and governance challenges. Only a few resource-rich countries have managed to develop their economies fully and provide a better and sustainable standard of living for large segments of their populations. This phenomenon, known as the resource curse, is a core challenge for energy-exporting states. Beyond the Resource Curse focuses on this relationship between natural wealth and economic security, discussing the particular pitfalls and consistent perils facing oil- and gas-exporting states. The contributors to this volume look beyond the standard fields of research related to the resource curse. They also shed new light on the specific developmental problems of resource-rich exporting states around the globe, including Azerbaijan, Bahrain, Cambodia, East Timor, Iran, Norway, Russia, Trinidad and Tobago, the United Arab Emirates, and Venezuela. Policy makers and academics think of energy security solely in terms of the interests of energy importers. Beyond the Resource Curse shows that the constant volatility in energy markets creates energy security challenges for exporters as well.

    eISBN: 978-0-8122-0617-3
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-x)
  3. Introduction
    (pp. 1-14)
    Brenda Shaffer

    Energy security is a fundamental challenge for major energy-exporting states. Most policymakers and many academics think of energy security solely in terms of the interests of energy importers. However, the constant volatility in energy prices and the permanent uncertainty of supply and consumption trends create energy security challenges for both importers and exporters. Beyond the Resource Curse examines a number of the challenges to energy-exporting states that emanate from this volatility and studies the various influences of oil and gas revenue on exporting states.

    Energy production and transport is a highly capital-intensive industry. Creating new energy production also requires a...

  4. Part I: Economics and Infrastructures of Energy Exporters
    • 1 The Natural Resource Curse: A Survey
      (pp. 17-57)
      Jeffrey Frankel

      It is striking how often countries with oil or other natural resource wealth have failed to show better economic performance than those without. This is the phenomenon known as the “natural resource curse.” The pattern has been borne out in econometric tests across a comprehensive sample of countries. This paper considers seven aspects of commodity wealth, each of which is of interest in its own right but also a channel that some have suggested could lead to substandard economic performance. They are: longterm trends in world commodity prices, volatility, permanent crowding out of manufacturing, weak institutions, unsustainability, war, and cyclical...

    • 2 Sometimes the Grass Is Indeed Greener: The Successful Use of Energy Revenues
      (pp. 58-83)
      Patrick Clawson

      Juan Pablo Pérez Alfonzo, Venezuela’s oil minister in the early 1960s and a father of OPEC, referred to oil not as “black gold” but as the “devil’s excrement.” In recent decades, the natural resource curse argument has often been presented as either a universal or near-universal rule.¹

      The rule nature of the argument is not plausible, however, because the exceptions are so glaring. The most important countercase is historical. Edward Barbier convincingly demonstrated that “throughout history abundant natural resources and favorable conditions in the world economy have combined often to generate successful resource-based development in many economies,” particularly during the...

    • 3 Is There a Policy Learning Curve? Trinidad and Tobago and the 2004–8 Hydrocarbon Boom
      (pp. 84-109)
      Richard M. Auty

      Since gaining independence in 1962, Trinidad and Tobago has experienced three hydrocarbon booms (1974–78, 1979–81, and 2004–8). The first two booms each conferred an additional 35 to 39 percent of non-energy GDP in revenue annually, and the most recent windfall conferred an average extra 59 percent of non-energy GDP annually. The over-rapid domestic absorption of the first two booms through increased consumer subsidies and state-led resource-based industrialization triggered a protracted growth collapse through 1982–93 that cut incomes by one-third and destabilized politics.

      Some lessons have been learned from the 1974–81 booms, and the deployment of...

    • 4 The Illusion of Unlimited Supply: Iran and Energy Subsidies
      (pp. 110-136)
      Ahmad Mojtahed

      Iran, one of the world’s largest energy producers, also has some of the world’s lowest domestic energy prices. This would seem to be an economic advantage, but the Iranian government has kept energy prices artificially low through a series of subsidies. These subsidies have created significant distortions in Iran’s economy, including an inflation rate that reached 25.4 percent in 2009.

      The Central Bank of Iran in 2008 estimated the annual amount of energy subsidies in Iran from 2001 to 2007 (see Table 4.1). Energy subsidies increased from $15.2 billion in 2001 to $87.6 billion in 2007. These figures mean subsidies...

    • 5 Challenges Facing Central Banks in Oil-Exporting Countries: The Case of Azerbaijan
      (pp. 137-160)
      Elkin Nurmammadov

      Central banks have evolved over time. Whereas the Swedish Riksbank and the Bank of England of the late-seventeenth century were established to finance war expenditures of their governments, modern central banks function as regulators of a nation’s money supply and as monopoly providers of legal tender. They pursue a variety of goals, such as price stability, output growth, and the stability of the financial sector. Moreover, central banks today exhibit much higher degrees of independence and transparency than even twenty years ago, when many of them practically functioned as departments of ministries of finance.

      The economic structures of different countries...

    • 6 Power to the Producers: The Challenges of Electricity Provision in Major Energy-Exporting States
      (pp. 161-200)
      Theresa Sabonis-Helf

      It may seem intuitive that petrostates, whose economies and federal revenues are based on oil and natural gas, would have energy to spare at home. In fact, many petrostates have persistent trouble keeping the lights on. Their electricity sectors are plagued by low reliability, poor quality power, and high transmission and distribution losses. This phenomenon is limited neither to times when the price of oil is low (meaning times when petrostates’ bud gets are tight), nor to times when the price of oil and natural gas is high (causing higher opportunity costs to using energy at home). Petrostate problems in...

  5. Part II: Energy Exports, Society, and Politics
    • 7 The Impact of Energy Resources on Nation-and State-Building: The Contrasting Cases of Azerbaijan and Georgia
      (pp. 203-224)
      Murad Ismayilov

      The demise of the Soviet Union gave birth to fifteen new states, all with a similar set of basic interests to pursue. Given the diverse material conditions these states were born into, however, the combination of resources and the mechanisms they could choose to utilize to address their interests was particular to each newborn republic. The latter reality, in turn, has worked to inform the diversity of pathways through which these nations’ postcolonial identities have emerged and evolved and to shape the channels through which their postcolonial polities have developed. This chapter will analyze the ways in which the forces...

    • 8 Education Reform in Energy-Exporting States: The Post-Soviet Experience in Comparative Perspective
      (pp. 225-258)
      Regine A. Spector

      A significant literature has emerged that seeks to explain the economic, political, and institutional underpinnings of the resource curse—that is, why countries that export natural resources such as oil tend to grow more slowly and underperform economically over time compared with those that do not. This chapter investigates the challenges that energy-rich countries face in their attempt to build human capital as a way to promote economic development.¹ As opposed to other forms of capital such as land and natural resources, human capital refers to the education and health of the people that constitute a community.²

      This chapter focuses...

    • 9 Is Norway Really Norway?
      (pp. 259-280)
      Ole Andreas Engen, Oluf Langhelle and Reidar Bratvold

      For many researchers in economics and political science, Norway serves as the archetypal state that has avoided the resource curse. When discussing whether a state’s policies will lead it to become a successful or unsuccessful energy exporter, the common refrain is whether it would like to be “Norway or Nigeria.” Hence, Norway appears to be a successful example of how it is possible to develop large-scale oil operations in a way that increases the societal wealth and benefits the whole population.

      Many contemporary studies of the Norwegian oil industry focus on reasons for the absence of “Dutch disease” and why...

  6. Part III: Energy Exporters in the International Political System
    • 10 Energy Exporters and the International Energy Agency
      (pp. 283-294)
      Richard Jones

      The International Energy Agency (IEA) was established in 1974.¹ The creation of the IEA followed the 1973–74 oil crisis and was a firm and effective response to this challenge. At its establishment, the IEA encompassed the major oil-importing states and aimed to limit oil exporters’ potential economic and political power.

      In the years since that crisis, the IEA has protected the interests of energy importers. IEA member states and other oil importers have taken a number of steps that provide them with important counterweights to exporters’ ability to disrupt energy markets. One of the most effective measures at the...

    • 11 Resource Nationalism and Oil Development: Profit or Peril?
      (pp. 295-312)
      Amy M. Jaffe

      The beginning of the twenty-first century was marked by a return to resource nationalism and empowerment of national oil companies that is transforming international relations among major nations and affecting the supply and price of oil. Resource nationalism finds its roots in the ideology that the natural resources of a country belong to the nation and exist as a national patrimony and consequently should be used for the benefit of the nation as a whole and not be exploited for private gain.¹ The reemergence of resource nationalism has large implications for future oil exploration trends and for the role of...

    • 12 Natural Resources, Domestic Instability, and International Conflicts
      (pp. 313-329)
      Elnur Soltanov

      The resource curse literature, which the present volume builds upon and contributes to, highlights the counterintuitively negative consequences of resource richness. This debate over the “curse of the plenty” has tied the presence of abundant resources to a myriad of undesirable consequences from weak state-society linkages¹ to authoritarian regimes,² to slow economic growth,³ and the like. This chapter tries to shed light on the effects of natural resource abundance on militarized conflicts.

      There have been numerous works studying the association between natural resources and domestic conflicts.⁴ Several scholars also looked into the association between resources and international conflicts though not...

    • 13 Petroleum, Governance, and Fragility: The Micro-Politics of Petroleum in Postconflict States
      (pp. 330-351)
      Naazneen H. Barma

      Contemporary political economy research suggests that whether a country falls prey to the resource curse depends on a number of structural and economic factors. The cumulative body of large-N analyses of resource-rich developing countries indicates that the quality of existing institutions is perhaps the key factor that mediates a resource-rich country’s economic outcomes.¹ Yet there is a gap in the political economy literature in terms of the subsequent causal reasoning about why institutions play this crucial intervening role in the resource curse. In this chapter, I examine the micro-politics of petroleum in Cambodia and East Timor through a framework rooted...

  7. Conclusion: Constant Perils, Policy Responses, and Lessons to Be Learned
    (pp. 352-370)
    Taleh Ziyadov

    This volume is an attempt to draw closer attention to the particular and consistent challenges facing resource-exporting states and to contribute to a better understanding of these perils through a number of recent case studies. It aims to add to a growing number of new studies that shed light on specific developmental problems of resource-rich states around the globe. As was highlighted in the introduction, the perils faced by energy producers are in many ways distinct and deserve closer examination.

    The constant perils of resource abundance have often been linked to economic, political, and social aspects of development in resource-rich...

  8. NOTES
    (pp. 371-448)
    (pp. 449-452)
  10. INDEX
    (pp. 453-464)
    (pp. 465-465)
    Brenda Shaffer and Taleh Ziyadov