A Discussion of “Does Information Break the Political Resource Curse? Experimental Evidence from Mozambique”
It seems logical that a country with no resources would be poor, so it seems puzzling when a country rich in resources is poor.
However, Armand, Coutts, et al. (2020) note the Resource Curse, defined as “a decrease in income following a resource boom,” explains this puzzle. (p. 3431)
This resource curse has been measured as a “cross-country negative relationship between per-capita GDP growth and exports of natural resources.” (p. 3432)
This is significant because we would normally expect an increase in exports to lead to an increase in growth.
First, GDP is the dollar amount of production of a country, and economists consider per capita GDP, GDP divided by the population, as a measure of the standard of living in a country. The percentage rate of growth in GDP per capita is the most commonly used measure of economic growth.
Second, exports are a part of GDP, and therefore GDP rises when exports rise, ceteris paribus. That last favorite phrase of economists means, “as long as nothing changes.”
Thus, the resource curse is causing other things to decline even as exports of natural resources rise.
Economists have explored a variety of theories over the years as the source of this curse. (p.3432)
- The “Dutch Disease” theory which was developed to explain why much of the Dutch economy declined after a natural gas reserves discovery in 1959. Essentially the increased exports of gas led to more demand for their currency which causes the currency to strengthen which makes their other exports relatively more expensive. Thus, even as the resource exports thrive, it chokes off other areas of the economy.
- Rent seeking replaces more productive use of resources. Rent seeking is defined as any expenditure of resources that is not producing output. A business uses resources to produce its product, but if it also spends money on lobbying for special favors, that is rent seeking. The natural resources create a pot of money worth chasing through rent seeking.
- Weak institutions allow corruption to grow. Institutions in this context refers to features like the legal system, property rights, competitive markets and the design of the government. Good institutions incentivize productive use of resources. Bad institutions can lead to corruption where some factions exploit resource for their own interests.
- The political resource curse postulates that politicians will try to personally gain from the development of the natural resources, which can even lead to violent conflict over the resources.
We have lots of theories, but how to solve the problem? Essentially, we need less rent-seeking, better institutions, more honest politicians, but how? What check can be put on these natural tendencies towards self-interest?
Appealing to their better angels would be nice, but a force that checks the move towards corruption would be more useful.
The authors propose that if the people of the country were better informed of the resource discovery and its implications, they could be that check and prevent the curse.
This offers some hope. We know we need better institutions to check greed, but at the moment we are stuck hoping those who could benefit from weak institutions would check themselves.
The authors are offering a plan: provide information to the citizens about the resource discovery and let them provide the check.
The Experiment
They conducted “a large-scale randomized field experiment in 206 communities of Northern Mozambique, after a massive resource discovery that will materialize as a future resource windfall.” (p. 3432)
When they say massive, they mean it. The authors say this discovery has the potential to make Mozambique the third largest exporter of LNG. (p. 3433) As a low-income country, the amount of money this discovery will generate is a substantial percentage of the economy.
The question is, if the people are better informed about the discovery, can they be the check on corruption? Would accountability of the government be increased if people knew information such as (p. 3433)
- the expected size of the future windfall, and
- the rights of the local populations to benefit from the exploitation of the resources.
With the support of the government, the communities were divided into 3 randomly selected groups.
- The Leader Treatment: the information is given only to the local political leaders, which the authors do not think would increase accountability of the politicians;
- The Community Treatment: the information is given to the local political leaders and the citizens, which the authors think would increase political accountability; and,
- The Control Group: No information is given.
The Results
The leader treatment did show an increase in the knowledge level of the leaders at a significant level without any increase in the knowledge level of the citizens.
It also revealed an increase in “elite capture,” where the leaders use their knowledge to benefit personally. This is in line with the authors’ expectations that
…in setting in which leaders are privately informed about a resource boom and the levels of political accountability are low, the quality of local governance deteriorates. (p. 3441)
In contrast, the community treatment showed an increase in the knowledge level for both the leaders and the community.
The authors find the community treatment increases the citizens’ perceptions of the benefits from the discovery and lowers the likelihood of violence at a significant level, while the leader treatment does not show these improvements at a significant level. (p. 3441)
They postulate that the lowered violence is “…possibly mediated by citizens’ mobilization and demand for accountability.” (p. 3442)
Conclusion
The puzzle of why countries with abundant resources so often also have low growth and low income for their people is one I see many of my students struggle with.
The general answer, as discussed above, is that those countries have weak institutions. While likely true, it is not a satisfying answer because how do you fix it? The very people benefiting from the current situation are the ones that need to fix the institutions and turn off their own money train.
The authors here offer an interesting escape. Particularly in the case of a new discovery, if a program can be instituted to educate local leaders and citizens, then the politicians will face accountability that increase the likelihood of better use of the resource revenues for the people of the country.
The government could gain with such a program because the community treatment did also show a lowering of conflict and violence. Perhaps an appeal to leaders along those lines will make them receptive to education outreach upon discovery of a new resource.
In addition, organizations already involved in these developing economies like the World Bank could recommend such community-wide education campaigns to further encourage the likelihood of governments adopting such programs.
Fixing an existing natural resources trap will continue to be a struggle but at least now the authors are offering a method to prevent future traps.
References:
Armand, Alex, Alexander Coutts, Pedro Vicente, and Ines Vilela (2020). “Does Information Break the Political Resource Curse? Experimental Evidence from Mozambique.” American Economic Review, 110 (11): 3431–3453.
By Ellen Clardy, PhD on .
Exported from Medium on December 15, 2022.
