john_tilton.pdf
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TECHNICAL PAPERS
“THE RESOURCE CURSE”
John E. Tilton
Colorado School of Minesand
Pontificia Universidad Católica de [email protected]
The Resource Curse
The belief or hypothesis that natural resource wealth and its exploitation hinders rather than helps economic growth in developing countriesCounter-intuitive but widely accepted
Overview
Origins of the resource curseThe on-going debateConclusions and implications
Origins – Conventional View
Rich mineral deposits are assetsTraditional production function
Q = f ( K, L, N )So mining creates wealth and fosters development
Origins – Early Contrary Views
Prebisch Singer thesis (1950)Declining terms of tradeSlow growth of demand
Import substitution policiesAdopted by many LDCsin 1950s and 1960sHigh tariffs, nationalizationsGenerally disappointing
Origins – Resource Curse
Empirical evidenceCase studies of individual developing countries (Auty, Gelb, and others in early 1990s)Cross section studies of many countries (Sachs and Warner in the late 1990s and early 2000s)
Origins – Sachs & Warner
Origins – Search for Causes
Declining terms of tradeVolatile marketsDutch diseaseNature of mining Use of mining rents (profits)
Origins – Policy Prescriptions
A mystery in search of an explanationSachs & Warner
Governments and World Bank should discourage mining in developing world
NGOs (Oxfam)Popular press (Economist)
Debate – Resource Curse Critics
Empirical evidenceTime periodGrowth versus development
Possible CausesDeclining terms of tradeVolatile marketsDutch diseaseNature of MiningUse of rents
Debate – Current Status
Considerable agreementMineral deposits are assetsMining has helped some countriesMining has hurt some countries
Disagreement focuses largely onCauses of resource curseImpact of mining generally on growth
Debate – The Dominating Issue
Does mining on balance slow economic growth and development?Should governments and the international community discourage mining in the developing world?
Debate – Appropriate Question?
But is this the right question?It assumes one answer fits all situationsGeneral consensus that mining has been good for some countries and bad for others
Debate – Better Questions
Under what conditions should mining be encouraged? Discouraged? How can the benefits from mining for development be maximized?
Debate – Search for Answers
Transparency and accountability Role of host government, mining companies, and international community in setting standards and ensuring domestic benefitsMining companies have to participate to maintain their social license to mine
Conclusion 1 –
Debate far from overStill much to learn about
mining and economic developmentappropriate company and public policiesprocess and entities governing mining behavior and setting the standards
Conclusion 2 –
The right questions matterWrong question: should we encourage mining in the developing world?Mining can be good or badRight question: where, when, and how should mining be encouraged?
Conclusion 3 –
Resource curse debate is important for mining companies and developing countries
Public policies greatly affect miningEconomic beliefs and theories shape policy much more than recognized
John Maynard Keynes’ famous quote
Conclusion 3 – John Maynard Keynes
The ideas of economists and political philosophers, both when they are right and when are wrong, are more powerful than is commonly understood. Indeed, the world is ruled by little else.
Conclusion 3 – John Maynard Keynes
Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.
Conclusion 3 – John Maynard Keynes
I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas . . . . Soon or late, it is ideas, not vested interests, which are dangerous for good or evil.
John Maynard KeynesThe General Theory (1936)
Conclusion 3 -
The perception that mining hurts economic growth—if it becomes the accepted wisdom—will impact public policies and affect miningAs in the 1960s and 1970s, the benefits of mining for developing countries could be lost or greatly reducedThe relocation of mining back toward developed countries would mean higher costs and prices for consumers
Conclusion 3 -
So we need to know more about the important relationship between mining and economic growth, and in particular how to ensure that mining promotes economic growth and other benefits for developing countries
For more information
“The Resource Curse,” Natural Resources Forum, Vol. 29 (2005), pp. 233-43, by Graham A. Davis and John E. Tilton
TECHNICAL PAPERS
“THE RESOURCE CURSE”
John E. Tilton
Colorado School of Minesand
Pontificia Universidad Católica de [email protected]