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Conflict and Natural Resources Relationship to Growth

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Is the incidence of Conflict and an abundance of Natural Resources in African States correlated with Economic Growth?

Table of Contents (Jump to)

Chapter 1: Introduction

1.1 Aims and Objectives

1.2 Overview

Chapter 2: Literature Review

2.1 The “Resource Curse” economic theory

2.1.1 The African Link

2.2 The causes of the “Resource Curse”

2.2.1. The “crowding out” cause

2.2.2. Quality of institutions

2.2.3. The “Dutch Disease” model

2.2.4 Other theoretical economic arguments

2.3 Civil war and economic growth

2.4 Natural resources role in Civil war

Chapter 3: Influence of natural resources on economic growth

3.1 The cause of “the resource curse”

3.2 Is “the recourse curse” relevant to Africa?

3.3 Other influential factors

Chapter 4: The role of conflict

Chapter 5: Empirical evidence

Chapter 6: Conclusion

References

During the course of the past two or three decades many economists and academics have been endeavouring to discover why a proliferation of natural resources, which is normally considered to be a wealth generating sources often have an adverse effect upon emerging economies, slowing rather than increasing the pace of development (Rodriguez and Sachs 1999, p.277 and Isham et al 2005, p.1). Other studies, concentrating particularly upon emerging nations is areas such as the African continent, have also claimed that there is a link between the proliferation of natural resources and political unrest and conflicts, which manifest themselves in “civil wars” (DiJohn 2002, p.1).

A number of theories have been advanced in an effort to offer an explanation for this phenomenon. These include the “resource curse” theoretic model promoted by Gelb (1988) and Sachs and Warner (1997); the “rent-seeking” and “Dutch Disease” models referred to in research carried out by Torvik (2001 and 2002) and DiJohn (2002), whilst others link the causes more directly to the institutions and political conditions pertaining to the individual nation (Mehlum et al 2005 and Isham et al 2005). However, other researches have suggested that such models should be treated with caution. For example, Stijins (2005, p.3), suggest that earlier “resource curse” models have limitations, and this view is echoed in the works of Rosser (2007, p.39) and others.

There have been similar divisions across the academic divide regarding the link between the level and treatment of natural resources and the propensity for civil unrest and violence, which culminates in most cases in civil wars. Whilst many observers view the cause of this unrest as being linked to natural resources and the political environment (Keen 2005, p.12) and the “difference in quality of institutions” (Mehlum et al 2005, p.3), others, including Rosser (2007, p.40), suggest that the level of strategic importance of the location of the individual nation may also be a determining factor, if not in the causality of civil war then in its potential longevity and likelihood of its reoccurrence. In addition, as Collier (2003, p.6), the globally perception held in many areas, that “nothing can be done” to end such disputes, add to the problem.

The divergence of views and research results indicated previously does raise questions regarding the efficiency and effectiveness of any action that may be taken to resolve the issues outlined, either within an individual nation or when addressing a specific geographical area. For example, whilst addressing the “resource curse” or “Dutch disease” may have some positive impact on the economic growth and development in emerging economies, it could follow that without a simultaneous response to address the issue of political structure, institutions and civil war, such benefits would be negated by other influences.

1.1 Aims and Objectives

The intention of this paper is to evaluate whether there is a common denominator that can be found to link the entire multitude of research together into one cohesive argument. Using the African states as a basis for this research it is felt that the conclusion of the paper could add to the continuing research into finding a unique theoretical model that will provide a format for improving the economic growth and development of poorer nations, particularly those that have not been seen to have gained economic growth and development benefits from their natural resource levels and capabilities.

Thus, to identify a fundamental aim for this paper, it is considered that the conclusion of the study will be intended to seek an answer to the following question: -

Is the incidence of Conflict and an abundance of Natural Resources in African States correlated with Economic Growth?”

Furthermore, in order to provide a structure that will assist with the achievement of a conclusion to this conundrum, the author has set four main objectives for the research, which in concise terms can be identified as: -

  • Providing an assessment the relationship between a country’s economic growth and its dependence upon the export of natural resource products.
  • Evaluating the claim that there is a link between civil war and economic growth and seek to distinguish the key elements that pertain to that link, which might include institutional and political performance.
  • Assessing the level of probability of civil war resulting from a nations dependence upon natural resources.
  • Reviewing the impact of strategic location, or lack of, and the potential influence this has upon internal conflict that might exist within the development process of an individual national or regional economy.

1.2 Overview

For ease of reference the paper has been organised in the following manner. Following on from this introduction, in chapter two a critical review of recent theoretical literature relating to the subject being studied will be conducted. This will include an overview of the theories relating to natural resource impact and dependency, the relationship between civil war, natural resources and economic growth and other arguments that have been expounded upon in recent literature. Chapter three includes a discussion on the influence that natural resources has economic growth and political unrest and this is followed in chapter four by a more detailed analysis of the role of that conflict plays economic performance of nations who have these resources. In chapter six we provide and analyse the empirical evidence as it relates to the nations of Africa. This structure will enable us to reach a conclusion in chapter sever regarding the question set for the study (see page 5). A bibliography of sources and appropriate appendicles follow the conclusion of the research.

As stated in introduction to this research, there has been a considerable amount of research carried out in regards to the influence that a wealth of natural resources has upon the economic growth of the poorer and emerging countries, as well as the relationship this has upon civil war and political unrest or imbalance. Within this review it is intended to focus upon the main economic and conflict theories that have been developed and discussed in recent decades.

2.1 The “Resource Curse” economic theory

It is the negative or reduced economic growth patterns that have been experienced by nations that have significant natural resources, which has given rise to the term “resource curse,” and which has given rise to a considerable amount of literature and research since the late 1980’s, amongst the foremost of which is that conducted by Gelb (1988), Sachs and Warner (1997), Rodriguez and Sachs (1999) and Sala-i-Martin, and Subramanian, (2003, p.833), although there has been a proliferation of other works.

The starting point and motivation for much, if not all of the research and literature relating to the “resource curse”, resulted from the significant difference that had been found to exist between the real economic growth performance of manufacturing and natural resource exporting countries over the years, as measured by the movement of GDP[1]. One of the latest examples of an analysis of this differential can be found in the review carried out for the World Bank by Isham et al (2005), which compared growth rates over a 40-year period (see figure 1).

 

When converted into graphical format (see figure 2), the extent of the deceleration of national resource exporters and the differential between these and manufacture becomes more obviously apparent.

As can be seen from the analysis (figure 1) in the first half of the period, when natural resources were being discovered and exploited, the GDP gap between these exporting nations and the manufactures exporters was more than halved, in fact in some periods the growth rate for natural resource rich countries was outperforming other areas (Le Billon 2005, p.13). But this improvement saw a dramatic reversal between 1975 and 1997. This performance has been directly linked to the movement of the natural resource revenue in other research, for example that conducted by Rodriguez and Sach (1999), where a similar pattern is revealed to be linked to the production of petroleum (see figure 3).

 

However, taking the period in its entirety, as the figures and graph show, whilst the GDP for those countries that did not have a significant level of natural resources (the manufacturing exporters) grew by 1.02 %, even the best performing growth rates for natural resources elements, being diffuse at -0.43%, reveals a growth rate gap of 1.45%. At the extreme end of the scale according the Isham et al (2005, p.12) that gap exceeds 3.5%, which explains why when taken as a whole the differential between the two types of exporters increases to 3% by the end of the period being studied.

2.1.1 The African Link

The majority of the research that has explored the “resource curse” has determined that this phenomenon has been particularly noticeable in the case of poorer and developing nations where, despite their high levels of natural resource and reserves, growth levels have been low or even regressed, in stark contrast to the performance of other nations that do not have the luxury of natural resources (Rodriguez and Sachs 1999, p.277 and Sach and Warner 2001, p.828). For example, Mehlum et al’s (2005) research concludes that many African countries with such resource levels have been afflicted by the curse, particularly those in the Sub-Saharan regions, which include Nigeria, Zambia, Sierra Leone and Angola.

In support of the link between the “resource curse” and the African nations, researchers have used data from a variety of sources as evidence to support their hypotheses, most of which is based upon the analysis of GDP. For example, using a similar period to Isham et al (2005) (see figure 1 on page 8), the World Bank “World Development Indicators” show that, although rich in resources to a similar if not better level than other developing countries, the Sub-Saharan regions of Africa have fared much worse than others (see figure 4),

 

Similarly, long-term patterns, dating back nearly two centuries (see figure 5), are used to support the fact that the curse is caused by factors outside of the possession of the resource itself.

 

2.2 The causes of the “Resource Curse”

In investigating the cause of the “resource curse,” current literature has a divergence of views relating to the economic, political and other elements that conspire to create this environment. Various researchers have identified a number of different factors as being the root causes of, or significant contributory reasons for the “resource curse.”

2.2.1. The “crowding out” cause

Of the most widely cited research, which includes the studies of being Sachs and Warner (2001) and Gelb (1998), describe the main issue as a effectively being a “crowding out” situation, whereby the concentration upon the natural resource has led to a situation where other exportable resources, such as manufacturing and production exports, which are considered to be important elements in a nations economic growth process, are at worst effectively neglected, or at best considered to be of reduced importance. This theory is supported by other research. Torvik (2002, p.455-456) acknowledges that this “crowding out” theory works on the premise that “an increased amount of natural resources then lowers productivity in all [other] sectors” of the economy. One popular variation of this model that has been developed is known as the “Rentier” state model (Torvik 2002, p.455). Torvik (2002, p.456) explains that in this case the negative impact on growth is generated by the fact that as powerful groups are attracted to the natural resource, they create an overcrowding within the natural resource sector, which again has the effect of contributing to the lowering growth rates.

Sachs and Warner (2001, p.833) suggest that the major elements of “crowding out” are the fact that perceived and actual increase in wealth generated from the resource increases demand and leads to higher prices throughout the economy, thus making manufacturing less competitive, particular in respect of international trade. In addition (Ibid, p.835) the research also suggests that another contributory factor is the loss of “knowledge” available to manufacturing and other sectors caused by the profit attraction of the natural resource sector, which adds to the diminishing of the competitiveness of these sectors. Innovative entrepreneurs will be attracted to take their resources away from production and into the natural resource sectors, which offers them a higher level of profit and return at a relatively lower costs. In comparison therefore, the manufacturing areas are seen to be unproductive (Mehlum 2005, p.5), which is bad for economic growth. This explanation concurs with the results of Sala-i-Martin and Subramanian (2003, p.15 and Le Billon, 2005, p.5), which indicates that the movement of labour away from agriculture to natural resources has contributed to a near halving of this sectors share of GDP in many countries, as evidence in Nigeria.

2.2.2. Quality of institutions

Other research, in dissimilarity to the popularity of the popular Sach and Warner view (Mehlum et al 2005, p.5), promotes the theory that the causes of “natural resource curse” are more closely related to the political and institutional failure to deal with the revenue, or “Windfall Gains” as Dalgaard and Olsson (2006, p.1) and others describe them. Sala-i-Martin and Subramanian (2003, p.8) findings in a study of the economic growth situation in Nigeria suggest that natural resources are “detrimental to institutional quality.” However, their research does find that this adverse effect of institutions appears to be more significant with oils and minerals than other natural resources and that once there is control within these institutions, the negativity impact ceases (Sala-i-Martin and Subramanian 2003, p.12), a view that Isham et al (2005, p.21) takes further by suggesting that the type of resource will “play a large role in shaping what kinds of institutional forms exist and persist.

An efficient, effective or strong institution or government can be modeled largely on the western demographic models, where this is a large degree of interaction and connection between the political forces and the citizens, with transparency and accountability being an integral part of the institutions structure (Moore 2004, p.313). Similarly, in cases where strong institutions exist, he likelihood is that the natural resource will be owned by the people, (albeit it through shares in corporations), rather than the state itself. The only connection between state and resource will be through the taxes that it levies on the commercial profits made from that resource. Weak institutions tend to be less democratic, in some cases being controlled by dictators and military juntas that pay little heed to the needs of the citizen, preferring simply to concerns themselves with the needs of their power and personal wealth.

Mehlum (2006, p.5) studies also confirm the institutional quality as being an important influence, in this respect leading to their conclusions that the “resource curse” is more prevalent in countries that have weak or poor quality of institutions, being those that are undermined by ethnic or non-democratic processes (Le Billon 2005, p.24). They describe these weak institutions as being “grabber friendly” A survey carried out during the course of their research found that out of 87 countries examined, only 15 were considered to have level and quality of institutions necessary to be effective in avoiding the affects or the curse. As with the earlier discussion on GDP, Isham et al (2005, p.13), again provides us with data support of the institutional influence (see figure 3).

 

If we look at the top half of this list, which represents the elements of weak institutions, we see that whilst manufacture exporters still achieve a growth pattern, albeit small, resource exporters are afflicted with negative growth. Conversely, with the stronger elements of institutions in place, the natural “resource curse” is not apparent, with the resource exporters showing all the signs of reasonable levels of economic growth.

Whilst agreeing with the principle that, particularly in Africa, institutions and the political structures are weak and therefore at risk from the “resource curse,” Dalgaard and Olsson (2006, p.4) add another element to the discussion, claiming the “windfall” element of the resource rent, added together with the level of Aid the country receives, exacerbate the problem of “resource curse.” Likening the resource windfalls to a lottery win Dalgaard and Olsson suggest that, faced with this relatively sudden new found source of wealth, the institutions are not sufficiently experienced in being able to administer it effectively and this produced a negative effect in institutional areas such as the rule of law and levels of corruption (Dalgaard and Olsson 2006, p.25). This is evidenced by the fact that “An IMF report on Angola, for example, suggests that close to $1 billion disappeared from the state coffers in 2001 alone, due to corruption, while fiscal discrepancies over the previous several years represented between 2 and 23% of the country’s GDP” Ross, 2003, p.9).

2.2.3. The “Dutch Disease” model

To the extent that the “Dutch Disease” model relates to the potential for a reversal of industrialisation Sach and Warner (2001) favour the “Dutch Disease” model, although they do not support the element of this argument that suggest an increase in workers wages in all areas of the economy (Sach and Warner 2001, p.836).

As the term indicates, the “Dutch Disease” theory was based upon the events experienced by the Netherlands following the discovery of natural “gas” resources within the country’s national waters in the mid 1950’s (Gylfason 2001, p.2).

The elements of this theory rest upon three main areas. Firstly, the fact that the upward movement of the currency for a particular country following the discovery of resources exacerbates the manufacturing and servicing sectors, in that it reduces their price competitiveness (Gylfason 2001, p.2 and Sach and Warner 2001, p..834). As Torvik (2002, p.2) indicates, because it is because “changes in the composition of production that determines the level or the growth rate of productivity,” that the upward movement of currency prices has such a negative impact on internal production and welfare.

Secondly, historically is has been noted that the global prices of resource materials is subject to a high level of fluctuation, which is caused by changes in the stocks, both in the resource rich country and other areas of the world (Gyflason 2001, p.3) For example, in the case of Norway, if other gas resource rich nations run out of supplies, the Norwegian resource will increase in value. Finally, the combination of the two previous elements causes financial exchange rate instability (Sach and Warner 1997 p.358 and Gyflason 2001, p.4). Gfylason suggests that this has an adverse effect on other areas such as foreign investment.

Nevertheless, irrespective of these factors, in the case of Norway, their effect was limited and this is an element that Gylfason concentrated his efforts on discovering why this country’s economic performance did not perform in the same adverse way that other “OPEC” countries experienced as a result of the discovery of natural resources, which included nations located in Africa, nor did it have the same longer term effect. The discovered differential relied upon two main elements. Firstly, that Norway had been a developed nation for some years prior to the discovery and, secondly, as a result of the development position financial, social and political institutions in Norway were more “mature” (Gylfason 2001, p.10), therefore more likely to be able to avoid the adverse effects of the “resource curse,” which was not the case with other OPEC countries. These results reinforced the conclusion of other researchers in regards to two areas, these being that there is a relationship between “weak institutions” and the curse of natural resources and that the negative elements of the “Dutch disease” is essentially only a major issue for such institutions.

2.2.4 Other theoretical economic arguments

Recently, economists and observers have sought to further clarify the theoretical argument relating to the “curse” of national resources by looking at other potential theoretical arguments, which would both support and potentially extend the existing literature on the subject of the “resource curse.” For example, Dalgaard and Olsson’s (2006, p.25) research indicated that there might be a connection between foreign aid and the resource curse, particularly in African nations that are the recipients of such aid. Whilst stopping short of agreeing with Burnside and Dollar’s (Quoted in Dalgaard and Olsson 2006, p.13) conclusion on this subject, this being the “aid only stimulated growth if accompanied by sufficiently sound macro-economic policies: e.g. low inflation and budget balance,” it was felt that further research into the systems and processes used for the distribution of aid was needed, as the likelihood of a connection with the economic performance of a recipient nation could not be discounted.

Another argument that has been put forward as elements of cause for the “resource” curse is the impact of an individual nation’s culture and geographic position. Dalgaard and Olsson (2006, p.19 and 20) believe that these issues should not be discounted. They point out that culture has been found to have a direct link to the level of corruption that exists within a nations political institution. In terms of geographical position, Dalgaard and Olsson’s study promote two arguments to support this being a classed as a source. The first of these is related to size, where it is argued that the greater the size of the country, the more extensive will be its institutions and, therefore, if the culture has a high corruption level, this will be increased (Dalgaard and Olson, 2006, p.19).

Secondly, there is a potential for a historical link between geographical and institutions (Dalgaard and Ollsson 2006, p.14). In this case, the study sets the case for arguing that, because of the problems associated with areas such as the tropics, which includes high mortality rates and tropical climates, the early influence of Western institutional structure did not expand into these areas of the world as they had in others. As an example, they cite the colonial spread, which was not as widespread in the African continent as it was in places like India. Thus, this element of the theory is based upon the fact that those countries who had a foundation of good western institutions being better able to escape the “resource curse.” Phenomenon. However, other researchers do not agree with this scenario. Sach and Warner (2001, p.2 and 3) argue that using these determinates within the resource curse studies would lead to anomalies id data, with some countries appearing to be “high-natural resource” economies simply as a result of the inadequate or negative performance of other area of their economies, and visa-versa. In this regard they hold that “geography and climate variables do not eliminate the natural resource variable.” Sach and Warner 1999, p.5).

Finally, but not totally unconnected with other arguments, is the argument relating to the problem of managing sudden excess. Referred to within Dalgaard and Olsson (2006, p.1) as the ineptitude of institutions at managing “windfall gains,” other reason it is the false perception of security that accompanies natural resources, which effectively provide “people with a false sense of security and lead governments to lose sight of the need for good and growth-friendly economic management, including free trade, bureaucratic efficiency, and institutional quality” (Gylfason 2001, p.7). Taking a slightly different tangent, although with a similar vein, Rodriguez and Sach (1999, p. 278), define that these countries are effectively “living beyond their means.” The view here is that resource rich countries are consuming the revenue from this resource without taking into account the fact that, unlike other areas of production, the stock of these resources cannot be produced or expanded as quickly, therefore creating an increasing gap between revenue and expenditure, which eventually lead to a situation where the nation will reach a point where future revenue may have to be mortgaged to meet current expenditure.

In summary, perhaps Gyflason (2001, p.8) puts it succinctly when he states that, irrespective of which argument one supports or how the individual may qualify it in academic terms, the core agreement is that “an abundance of natural capital may erode or reduce the quality of social, human, and physical capital, and thus stand in the way of rapid economic growth.”

2.3 Civil war and economic growth

Irrespective of the divergence of views expressed within the literature outline in the previous sections of this chapter, one area that almost all are agreed upon is that in addition to the lack of economic growth resulting from the “resource curse,” this growth can also be adversely affected by the political stability of the nation, particularly where conflict and civil war is involved.

The common definition of civil war is that conflict which leads to one thousand deaths or more. Similarly, the popular western perception is that the causes of such conflicts are caused by racial or religious tensions (Collier 2000, p.95-96). Whilst this may be true in terms of the sides taken in internal power struggles (Keen 2000, p.24), in most cases these are fuelled by a struggle to control resources. To this extent there is an economic element (Keen 2000, p.22 and Berdel and Malone 2000, p.28). Mehlum (2003, p.275) and Keen (2000, p.29) reinforce this viewpoint with the findings that those involved with these conflicts include elements from all aspects of society, such as rebels, military, political and commercial factions. In other words, particularly in countries with weak political controls “a war may be seen as continuation of economics by other means” (Keen 2000, p.22) rather than a simple clash of ideologies.

Methlum et al (2005, p.6) confirm this argument, showing that in a country that have institutions and governments deemed to be weak, which is the case in many African states, this results in a situation where “the government is unable to provide basic security.” They conclude that such a situation creates an environment that fuels an increase in violence and civil wars, with control of natural resources being the main success target of the conflict and, ironically, used to finance many of these activities.

Providing evidence of this in his study relating to the phenomenon of conflict diamonds, Olsson (2004, p.3) states that in countries with rich resources and weak institutions, natural resources can often lead to a triangular conflict environment of “a ruler (the prey) in control of a flow of natural resource rents, and a rebel (the predator) who might choose to prey on the ruler’s natural resource,” with the ordinary person in between these, that can create an adverse economic effect. Because the rebel wants to appropriate the natural resources, this forces the ruler to invest resources in defence, thus lessening the resources available for production and reducing the potential for economic growth. As is indicated later in this same research (Olsson 004, p.14), this situation of fuelling conflict and lining the pockets of dictators is not just limited to diamonds, but extends to a number of other natural resources.

Other literature has confirmed the connection between the potential for conflict and economic growth. Rodrigueaz and Sach (1999, p.19) commenting upon the aspect of nations living beyond their means, found that, in the case of Venezuela, this leads to unrest and conflict. Dalgaard and Olsoson (2006, p.8) also identified that the high level of natural resources, when combined with weak government and low productivity in areas of production not related to natural resources, produced a “higher risk of potential conflict.” Both of these studies concluded that these conflicts served to deepen the adverse effects on economic growth. As Rodrik (1998, p.3) showed in his research, the biggest falls in GDP rates post 1975 occurred in countries that were socially divided and unable to manage conflict and these countries, more often than not, were those with high levels of natural resources (Wagner 2007). Thus it is concluded that civil war can serve to significantly damage economic growth (Rodrik 1998, p.3).

2.4 Natural resources role in Civil war

One of the recurrent themes in the literature relating to natural resources, as has been identified within the previous sections, is the impact that natural resources and economics has upon social unrest and conflict. For example, Le Roux’s (2004, p.3) research suggests that as three quarters of the African states included within her study have been involved in civil war since the mid 1990’s, this can be taken as an indication that such a link is justified. Similarly, this causal link is seen be further endorsed when one links the civil war to the resource share of GDP.

As seen in figure 7 below, studies have shown that this risk increases proportionately in relation to the percentage of GDP that is related to those resources.

 

This graph clearly identifies that natural resources have a significant role in the arena of civil war although, as various literature shows, these roles are more diverse than might first be apparent. In essence, this can be divided into three main factors, these being greed, continuation and the economics of illegal appropriation.

A link between poor economic development and conflict is suggested by the fact that 15 of the 20 least-developed countries have experienced civil war in the last decade alone2. Le Roux 2004

Perhaps the most basic role that natural resources play in civil war, greed is often seen as a driving economic force in civil war (Olsson 2004, p.4), where either the individual or groups want to control a share of this resource. As this search for share becomes more explosive, there is an increase in corruption and tension in the country, which can ultimately result in a civil war erupting. This is likely to occur in what Mehlum (2005, p.7) calls the “Grabber Friendly institutions” In the individual sense, the greed for natural resources can lead to a coup, where the dictator is driven by the desire to increase their personal wealth and power (Olsson 2004, p.14 and Wagner 2007). Two classic example of this can be seen in the case of the Liberian dictator, Charles Taylor, who is estimated to have accumulated a wealth in excess of $400 million from wars (Berdel and Malone 2000, p.5) and Obliang in Equatorial Guinea (Wagner 2007). In addition to power, these resources also provide the dictatorial regime with the “resources to pursue direct repression and violence against dissenters” (Isham et al 2005, p.6).

Secondly however, as Olsson (2004) also points out, the natural resource also acts as a prize over which rebel and opposing groups will fight, as has been seen to be the case in areas such as Angola and the DRC[2], where internal conflicts have raged in an effort by both sides to gain control of the natural resources and, as a result, political control of the nation and international recognition. In essence this relates to the second aspect of the role of natural resources in conflict, that being grievance and discrepancy.

Le Roux (2004, p.7 – 8), describes the financial aspect of national resources influence and role upon conflict as operating in the following ways: -

  • “− Looting or selling of resources to fund war effort
  • − Corruption and diversion of state-owned resource revenues
  • − Extortion, kidnapping and sabotage
  • − Selling advance rights to resources, or “booty futures”
  • − Raising finance using resource-backed loans.”

As Murshed’s (2001, p.3) research shows, there is an increasing gap between those nations that are rich and the poor relations a position that has increased over three and a half times since the 1820’s, the cause of which can be identified by the lower economic growth rates that poorer countries have achieved (see figure 5 on page 11 of this paper), which goes some way to explaining the frictions that occur between developed and emerging and developing nations..

However, such divisions exist internally within nations, where other factions or the government may deprive sectors of the citizens of economic wealth. Particularly in the case of weak institutions, such as dictatorships, the state or person, will basically ignore the needs and demands of the general population, such as poverty and deprivation, in favor of building their own wealth, which leads to civil unrest. Even if this occurs, the state or dictator is more likely to spend the wealth on repressing the dissidents than responding to demands and grievances. With such a scenario, conflict may be seen as the way in which these discrepancies can be addressed, which as Murshed (2001, p.9 and 15) does provide a valid argument as to why civil wars might develop in the first place.

Thirdly, there is also a significant amount of research that has concluded that natural resources play a significant role in the elongation and continuation of civil war. This has been shown to be predominantly the case in African Civil wars. Often, as is shown in the Research of Berdel and Malone (2000, p.5), both sides have an inherent economic interest in prolonging the dispute. For example, in the case that is quoted, being Angola, the rebel’s control of resources enabled it to finance the war and continue to attract wealth to individuals and commercial concerns. Similarly the government side was benefiting from foreign exchange deals and even selling arms to the rebels. Thus there was no incentive to end the war. Similar experiences have been found in other areas of Africa, where diamonds have been seen to have a role in the continuation of conflict (Olsson 2004, p.5).

Finally there is the illegal appropriation of natural resources that occur during civil wars. Berdel and Malone (2000, p.6) cite the case where, as a result of the war in the DRC, Rwanda and Uganda have been able to exploit this situation by plundering the natural resources of the DRC to enhance their own foreign exchange. The case of Rwanda and Uganda mentioned here may explain why, in other respects, they do not conform with the perception that Collier and Hoeffler (2003) model suggests, namely that countries with a low level of natural resources would have a low expectation of civil war (le Roux, p.6), simply because they have used the plundering of neighbouring countries as a means of inadvertently increasing their own dependency levels beyond officially recorded levels.

However, it has also been found that the role of natural resources in civil war is, in the main, limited to those countries that have a position of weak institutions (Sala-i-Martin and Subramanian 2003, p.24). Where the reverse is true, namely institutions are strong; these resources do not have the same effect. Therefore, as Wagner (2007) says, the “resource curse does not fall on poor countries because of their resource abundance. The "curse" lies in the failure of the rules that allocate control over these resources.”

Nevertheless, there is other research, for example Le Roux (2004, p.6) that sounds a note of caution, particularly with regard to the conclusion that resource dependency can be linked to conflict. Ms Roux if such a link is to be established, there is also nothing to stop the reverse being true, in this case “it may be that conflict leads to greater natural resource dependency.” In this case it could therefore be argued that, because conflict, whilst able to drive manufacturing and production resources out to the area, cannot have the same effect on natural resources due to the static nature of their location, it remains the only economic activity.

The literature reviewed relating to the influence of natural resources on economic growth in chapter 2 raises some interesting areas worthy of further discussion. For example, whilst most research can identify the “resource curse” in retrospect, this has not reached a position where there is a consensus of prediction (Wagner 2007). However, as Wagner continues, what is generally agreed upon is that one of the results of the curse is that the wealth element of natural resources does not benefit the poorer sections of the nation’s society, a point also made by Murshed 2006, p.1).

Wagner (2007), Sala-i-Martin and Subramanian (2003, p.17 and 19) and Murshed (2006, p.17) all promote the theory that natural resources in reality belongs to the citizen and that, if they were to directly benefit from this ownership, with the government collecting revenue from taxing rather than controlling the wealth, the resource curse would be less likely to occur.

3.1 The cause of “the resource curse”

As has been shown, there is a similar divergence of views in respect of the causes of the resource curse. For example, the popular “crowding out” and “Dutch Disease” theories expounded upon by Sach and Warner (1997 and 2001) and Torvik (2001), do not meet with the universal agreement of other academics. For example, Mehlum (2005, p.23) poses the question “Why should the crowding out of the traded goods sector be directly related to institutional quality?” Auty (1998, p.40), also suggests that that the resource curse trap may be more connected to policy decisions rather than the other aspects put forward by other authors.

Conversely, whilst Mehlum (2005, p.23) claim that their results show the resource curse to be caused by a mixture of weak institutions and the abundance of natural resources, thereby suggesting that the strong institutions reduce the curse risk, Sach and Warner (1997, p.10) are of the opinion that this situation does not make a material difference to the causes of the resource curse. Therefore, the debate over whether, as Mehlum (2005, p.18) research indicates, if one puts good institutions in place the effects of the resource curse can be eliminated, which means that there will be growth winners and losers as a result of natural resource abundance, is continuing.

Indeed the quality and performance of institutions as a cause of the resource curse is argued at some length in literature. In addition to the findings of Mehlum (2005), in their case study on Nigeria for example, Sala-i-Martin and Subramanian, (2003, p.16) argue that the poor performance of the government was probably the most important factor in the negative economic growth that Nigeria has witnessed. However, it has to be said that the case study of Norway (Gylfason 2001, p.10) and Botswana (Sharraf & Jiwanji 2001, p.1) do tend to support the Mehlum argument, as neither of these countries have suffered from the curse to the same extent as those with weaker government institutions, such as many African states.

There is a similar debate regarding the effect that different natural resources have upon the resource curse. In this case, with a few exceptions, Sach and Warner (1999, p.5) find that this has little bearing on the issue. Whilst agreeing with this research stance in principle, the table included in Isham 2006, p.13 (see page 8 of this report) shows that the various types of natural resources have a markedly different impact upon the GDP rates, with coffee and cocoa reducing the GDP growth to less than 1% whereas Diffuse resources showed 1.6%.

Another area that is considered to potentially increase the adverse influence of the natural resource curse on economic growth is seen to be foreign intervention and aid. Dalgaard and Olsson (2006, p.25) suggest that improvements to the distribution process for aid assistance. Wagner (2007), goes further suggesting that foreign aid, and indeed the monies external organizations use to purchase natural resources from countries with weak institutions, exacerbates the problems because there are insufficient controls in place to ensure that these monies reach down to benefit the citizens of these countries.

One area where there does appear to be a fairly unanimous agreement within the literature however, is the ability of resource rich nations to react to their sudden increase in wealth. Sach and Warner (1997 and 1999), Dalgaard and Olsson (2006), Isham et al (2005) all agree with the comment made by Papyrakis and Gerlagh (2004, p.182) that a resource “boom may also create a false sense of security and weaken the perceived need for investment and growth-promoting strategies.

In conclusion, it is fair to say that there is merit in all of the research positions put forward regarding the elements that are relevant to the resource curse because, whilst the divergence of views may appear on the surface to be not leading to a universal definition of the natural resource curse, they do, either in isolation or when combined, provide guides as to the areas that should be studied when considering the economic development of an individual nation. As Stevens (2003, p.17) rightly suggests, the diversity of nations in terms of location, political and economic structure and performance means it would be highly unlikely to have a resolution where “one policy fits all.”

3.2 Is “the recourse curse” relevant to Africa?

For the purpose of serving the objectives of this paper, it is also important to assess the extent to which the “resource curse” is relevant to Africa as a specific region, and this is the element that will be concentrated upon in this section.

As a number of independent researchers have identified, there are many reasons for the problems being experienced in Africa, amongst which could be numbered “political, economic, social, religious, cultural, ethnic” (Le Roux 2994, p.3). For example, differences between tribal groups, as has recently been witnessed in Kenya, can often spark a level of unrest in the civilian population, which spills over into the political arena. However, whilst this may be the case, it is clear that in this case, as with many other similar examples, the economic development, or rather lack of it, acts as a nucleus for the expression of those problems.

There are several factors by which this assumption of relevance can be assessed and justified. For example, if one refers to figure 7 (previously included on page 22 of this report), it can be seen that those countries where the element of GDP related to the export of resources reaches 29.5% stand the greatest risk of civil conflict. In his table of target countries where that level is exceeded, Stevens (2003, p.8) have identified in large number of these countries to be African states (see figure 8).

TABLE 1 THE TARGET COUNTRIES – The “usual suspects” are underlined.

Algeria Angola Australia Bahrain Bolivia Botswana Brunei Cameroon

Canada Chile Colombia Congo, Dem. Rep. Congo, Rep. Cyprus Ecuador

Egypt Gabon Greenland Guyana Indonesia Iran Iraq Jordan Kiribati

Kuwait Lao PDR Liberia Libya Malaysia Mauritania Mexico Morocco

New Caledonia Niger Nigeria Norway Oman Panama Papua New

Guinea Peru Qatar Saudi Arabia Senegal Seychelles Sierra Leone

Suriname Syria Togo Trinidad and Tobago Tunisia United Arab Emirates

Venezuela Virgin Islands Yemen Zambia

Source: Stevens (2003, p.3)

Similarly, although their research shows that African countries are not the only areas affected by the resource curse, Murshed (2005, p. 27) research does show that they are included within the dataset of countries studied for this condition. Data from World Bank sources (2006), also confirms that, particularly in the Sub-Saharan areas, African states are some the poorest in the world, despite their resource levels. Therefore, on pure economic grounds, it is apparent that the resource curse is relevant to Africa.

Secondly, as one of the major aspects of the resource curse is the “crowding out” effect from other industries (Sachs and Warner 2001), countries that have a poor level of other industries such as manufacturing, would be likely to be more prone to the curse.

In his studies on the subject Murshed (2006, p.5), along with others, suggests that the resource curse can be more pronounced in the African region in respect of the weakness of other industries for several reasons. These include conditions such as disease, climate affect on agricultural production and transportation difficulties, which all make it more difficult for the other industries within the region to exert any real influence on economic growth. As Moore (2004, p.304-305) suggests in his study, this puts the region at a distinct disadvantage when compared with the more developed parts of the world.

Similarly, Sijiins (2006), by explaining the point that the level of economic and technological development reached by nations played a part in the incidence of the resource curse, indicated that those countries that are not technically advanced, which includes many African states, would not be able to exploit and control their natural resources in the same way that the more advanced countries can.

The relevance of the natural resource curse to Africa and its national states has similarly been confirmed in studies conducted by other researchers such as Paul Collier (2003), Sarraf and Jiwanji (2001) and Ross (2003).

3.3 Other influential factors

As has been identified within the previous chapter, there are a number of other factors that also influence the lack of growth in natural resource rich nations.

  • Investors, entrepreneurs and aggressive corporations are driven by wealth generating factors. Therefore, in a situation where faced with the alternative of the wealth generator of natural resources against manufacturing and service industries, the former would be preferred, thus depriving other sectors of capital for growth. In areas such as Africa, which are reliant upon the innovative skills of entrepreneurs to help it build such industries, this movement towards natural resources increases their levels of disadvantage.
  • Excessive expenditure is another factor. It has been shown that, following discovery of natural resources, several of the nations involved have embarked upon a programme of expenditure that exceeds the nations wealth generating capability (see Warner and Sachs 1997, p.10 etc). Papyrakis and gerlagh (2004, p.190) see these as part of the transmission channels that will affect growth.
  • Many resource rich nations have weak institutions and governments, for example those that are dictator based or not yet fully developed democracies. This increases the potential for both corruption and political unrest (see Ross 2003 and Reno 2002). By reducing the ability and profitability of other industries, due to the conflict position, this also adversely influences the level of growth that a country can attain.

As indicated previously there is some division as to whether there is a relationship between the wealth of natural resources and the impact this may have upon conflict and civil war. Some researchers suggest that a prior incidence of civil war is more likely to create current or future strife, whilst others disagree. An example of the latter, particularly in relation to Africa, is evidenced in the work of Paul Collier (2003, p.1147 - 115), which suggests that when compared with other developing nations, the incidence of civil unrest is only a fairly recent occurrence, in other words it has only become prevalent since the knowledge of natural resources has become apparent (see figure 1).

 

Other research has taken these statistics further and analysed the incidence of civil war in an effort to link it with a specific type of resource that a particular nation possesses (see figures 10 and 11). In the case of the former table, this has been geographically restricted to African nations over a short time span.

 

Figure 11 takes a more global perspective on the issue and has identified that over eighty percent of the areas of conflict analysed are seen to have some link to a natural resource and therefore, to this extent, the conflict can be said to be economically motivated to a greater or lesser extent.

 

Of itself, these two tables suggest that the role of conflict is most likely to be related directly to the proliferation and development of natural resources. Furthermore, although figure 10 covers a latter period than the one indicated in Collier’s analysis (see figure 9), Murshed’s analysis (figure 11) acts as further confirmation that the role of conflict became important and more pronounced as the natural resource levels grew, certainly in the case of African nations. Nevertheless, this conclusion should also be tempered with the fact that it was only in the late 1940’s, following the end of World War Two that many of the African states became independent countries in their own right, as prior to that time they were, in the main, parts of the developed Western countries, for example the British Empire (Francis 2006, p.12).

Does being natural resource rich lead to a position where a country is more prone to conflict / civil war? This depends upon the political structure of the country and the quality of its constitutions. In cases where there is a history of unrest this may be the case (Ola Olsson 2003, p.2 and Olsson 2006). Similarly, in this and other cases violence can be created by a struggle for dominance over the natural resource (see Keen 2005).

Similarly, there is little doubt that natural resources are being used to fuel armed conflict between apposing factions, providing the funds for weapons (Le Billon, p.61 and Le Roux 9).

However another, perhaps more important influence on the role of conflict, (Collier 2003), is the external factors that control it. For example, in Indonesia, a country that is resource rich (Rosser 2007, p.58), the strategic geographical position is seen to have been the key to the lessening of conflict. In this respect, it was in the interests of the Western powers to ensure that conflict did not present a danger in this areas, thus intervention has been used to address conflict situations as they arose.

Yet in other areas of the world, particularly Africa, the international community in the form of developed western nations has taken a different stance completely, based upon the resource rather than the geographical importance. As identified by Moore (2004, p.306 – 307) a classic example of this would be oil. Because of the strategic importance of this resource to the developed nations, there is an a willingness to support regimes that are blatantly operated by weak institutions, even if this means “conspiring” to keep the citizens deprived of their share of the resource benefits (Wagner 2007 and Le Roux 2004, p.6). Recent literature (Stevens 2003,p.4) has become increasing concerned with the role that western corporations are playing in the conflict torn areas such as Africa, suggesting that this situation could see them being held responsible for these nations being afflicted by the resource curse and heightening the potential for civil war, a situation that has also been identified as a potential cause of at least increasing the risk of conflict in addition to the resource curse influence (Le Roux 2004, p.6). In addition to taking commercial organizations to task for this situation, some researchers, such as Wagner (2007) and Le Billon (2005, p.47), have also stated that the international NGO’s are behaving in some cases in an equally irresponsible manner, by being prepared to work and negotiation commercially with the nations that have weak institutions.

All of these areas and discussion are critical elements that the empirical research of this paper conducted in chapter 5 will seek to assess.

Regressions conducted with the data provided (all data is from the World Bank Development Indicators bar the Civil War data which is compiled from Collier & Hoeffler 2001), using STATA. The data provided on civil war is defined as a conflict where at least 1,000 battle related deaths (civilian and military) occurred per year. All other definitions as per the World Bank.

Regressions for the 30 year (1960 -1999) averages have been conducted and supplied but if possible can the ‘fixed effects’ method be used to get 5 year averages, i.e. 6 periods where all the variables are analysed. This is a common technique used by many writers looking at the correlation between civil war and natural resources. Examples of this technique can be found in Collier & Hoeffler Green and Grievance in Civil War.

It is paramount that an understanding of regression analysis is shown so there should be a mini Methodology, Results Analysis and Discussion of Implications (whereby findings are related back to prove/disprove the hypothesis discussed in qualitative section of the dissertation). The most important thing is not really the results (i.e. proving/disproving there is correlation between natural resource dependence, economic growth and civil war) but highlighting any limitations etc. To start with some limitations may be as follows:

  • Does not look at whether resources influence all types of civil wars or only a subtype.
  • Does not look at whether the natural resource-civil war correlation could be spurious: both civil war and resource dependence might be independently caused by some unmeasured third unaccounted for variable, such as the weak rule of law. (Michael Ross)
  • Does not look at tax rates.
  • The terrain of a country is not taken into account. Mountainous / forest cover etc.
  • With regards to the regression analysis reverse causality could be a factor but this is the case for the majority of economic studies.
  • All the quantitative part of the dissertation measures only natural resource exportation so no account is made for natural resources that are consumed domestically. This can be justified by the fact lots of other studies ( use the same measure as the data quality is good.

As has already been done to a small extent further regressions looking at how other variables effect economic growth. Using variables such as fuel exports, metal and ore exports, life expectancy. Comment on the findings.

Mention the fact that some parties enter into conflict to profit from the war economy and therefore never want the war to end.

In conclusion, it is the opinion of the author that the question that was set at the commencement of this paper, being “Is the incidence of Conflict and an abundance of Natural Resources in African States correlated with Economic Growth?” has been answered in the affirmative.

References

Auty R (1993). Sustaining Development in Mineral Economies: The Resource Curse Thesis. Routledge. London, UK.

Berdal, Mats and Malone, David M (eds) (2000). Greed and Grievance: Economic Agendas in Civil Wars. Lynne Rienner Publishers. Boulder, US.

Burnside, Craig and David Dollar (2000) Aid, Policies, and Growth. American Economic Review Vol. 90, No. 4: 847-868.

Collier, Paul (2003). Breaking the Conflict Trap: Civil War and Development Policy. Oxford University Press. New York, US.

Collier, Paul and Hoeffler, Anke (1998). On economic causes of civil war. Oxford Economic Papers. Vol. 50, pp.563-573

Collier, Paul and Hoeffler, Anke (2004). Greed and Grievance in Civil War. Oxford Economic Papers. Vol. 56 (4). Pp. 563-595.

Collier, Paul., Hoeffler, Anke and Soderbom, Mans (2001). On the Duration of Civil War. Centre for Study of African Economies. Oxford University. Oxford, UK.

Dalgaard C-J. and Olsson, O (2006). Windfall Gains, Political Economy, and Economic Development. Journal of African Economics.

David Keen (2002). Incentives and Disincentives for Violence in Mats Berdal & David Malone (eds): Greed and Grievance. Economic Agendas in Civil Wars Boulder CO: Lynne Rienner, p.19-41.

DiJohn, Jonathan (2002). Mineral Resource Abundance and Violent Political Conflict: A Critical Assessment of the Rentier S


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