Safety nets and economic growth

Stefan Dercon wrote a paper a couple of years ago about how cash transfers might boost growth - by focusing on investments in ECD, smoothing geographical mobility, or smoothing the school-to-work transition.

To those possible avenues, Harold Alderman and Ruslan Yemtsov (ungated) now add:

• improving financial markets
• improving insurance markets
• improving infrastructure (through public works programmes), and
• relaxing political barriers to policy change

I find the last one particularly interesting. So for example, Ghana recently tried to offset the removal of fuel subsidies with a doubling of the coverage of the still-small national cash transfer programme to 150,000 households - helping to avoid Nigeria-style protests. Alderman and Yemtsov note that Indonesia pulled a similar trick on subsidy reform, and Mexico's safety nets helped usher NAFTA in.

But this political point goes beyond relaxing barriers to policy change, to relaxing barriers to technological change. Otis Reid pointed out to me this paper by economic historians Avner Greif and Murat Iyigun which argues that:

"England’s premodern social institutions-specifically, the Old Poor Law (1601-1834)-contributed to her transition to the modern economy. It reduced violent, innovation-inhibiting reactions from the economic agents threatened by economic change."

To be crude - it's worth paying off the Luddites so they don't get in the way of growth-enhancing technological change.

Gettin' by digging gold

Fascinating article by Hez Holland on the artisanal mining business in South Sudan. The numbers sound kind of crazy but then South Sudan is a kind of crazy place. 

Leer Likuam sat on the edge of a shallow trench, puffed his pipe and boasted he once found a 200-gram gold nugget bigger than his thumb ...  

On the international market, Likuam's prize lump would fetch $11,000, an enormous sum in a country where the average teacher earns just 360 South Sudanese pounds, about $90, per month ... 

On an average day he might dig up six grams, worth around 1,200 South Sudanese pounds ($270), he said. "Some days you're lucky."

That seems far too high to really be an average day. Perhaps some more boasting. But then

In the last year alone, Likuam has bought 10 cows, each worth around 1,000 pounds.

Predictably the government is keen to get in on the action and get some big foreign companies in to do some real exploration that they can tax. Given the rather weak relationship between government revenues and public services, I'd like to see some research on the current scale of the industry and how many people are making a living with it, and then what we might expected to see from large commercial mining in terms of both revenues and local employment. One of the key messages from WDR2013: not all jobs are equal for development. 

Minerals in Mongolia

Mining experts estimate that the country possesses as much as $1 trillion worth of untapped precious metals and minerals in at least 6000 sites. That works out to potentially over $333,333 per every man, woman and child in the country.

ᔥ Brookings ↬ Kari

Which countries are most vulnerable to the resource curse?

A new report by my colleague Dan Haglund suggests it is;

Non-fuel, mineral-dependent countries:

Bolivia, Burkino Faso, the DRC, Ghana, Guyana, Laos, Mali, Mauritania, Mongolia, Papua New Guinea, Tanzania and Zambia.

Fuel-dependent countries: Algeria, Angola, Azerbaijan, Cameroon, Chad, Cote d’Ivoire, Iran, Iraq, Nigeria, Sudan, Timor-Leste and Yemen.

See the full report here or coverage in the FT here.

Blessing or curse? The rise of mineral dependence among low- and middle-income countries 

Revolution and the Resource Curse in the Middle East

Chris Blattman quotes Arvind Subramanian (writing in the FT)

Even if the people of Libya and Bahrain join those of Egypt and Tunisia in overcoming their cursed political systems, the economic manifestations of their rent curses will remain.

The case for the resource curse certainly sounds persuasive, but I just don’t think the evidence is really there any more, with more and more recent studies debunking it. As Charles Kenny writes in Foreign Policy,

The curse is the type of counterintuitive idea that makes for a great newspaper op-ed. Nonetheless, the curse is also the kind of counterintuitive idea where intuition may have been right to begin with.

To the extent that it does exist, the curse is not destiny, and movement towards more open societies is the best way of fighting it.

Hold tight Bahrain, hold tight Libya.

UPDATE: I found the link to some of the main research disputing the claims

7 ways to overcome the natural resource curse

A new survey article by Jeffrey Frankel at Harvard concludes with a list of promising ideas for overcoming the natural resource curse and achieve good economic performance.

1. Indexation of oil contracts - Contracts between oil companies and governments could easily (but usually don’t) have explicit clauses to deal with global price volatility - sharing the downside and upside risk.

2. Hedging of export proceeds - Simply buy insurance against low oil prices, like the Government of Mexico has done. Easy.

3. Denomination of debt in terms of oil - i.e. promise to repay a quantity of oil rather than a dollar amount. This insures the borrowing government and transfers the price-risk to the lender.

4. Chile-style fiscal rules - Chile managed to save its copper boom and spend its way through the global recession by having an independent fiscal panel make assessments of the medium-term price and output gap - and tell the government how much they were allowed to spend.

5. A monetary target that emphasizes product prices - If the Central Bank has greater political independence than government coffers, monetary policy could be geared towards building up higher-than-otherwise-desirable stocks of foreign currency reserves - in order to ensure the savings aren’t raided.

6. Transparent commodity funds - The challenge is in the transparent part.

7. Lump-sum distribution - Last but not least, my favourite. Just give people the money.

Bad News Friday

My nemesis the Stationary Bandit notes that the economy of Botswana shrank last year.

Last year's economic performance was not good.

• Botswana’s economy contracted by 6.7 percent last year as revenue from diamonds plummeted, Central Bank Governor Linah Moholo said.

This succinctly summarizes the problem for Botswana. Although its growth record for decades has been impressive, it remains too undiversified.  Diamonds and cattle remain large sectors of the economy.  When diamond revenues plummet, the economic consequences are severe.  Add in the HIV/AIDS situation with a contracting economy can quickly turn an African success story into another African Growth Tragedy.

I’m going to get drunk.

A change.org campaign for oil transparency

Dear rovingbandit.com,

In 2008, Chevron paid more than $40 billion to the governments of countries around the world - most of it entirely in secret.

Chevron drills for oil in places where millions of families struggle on less than $1 a day. That $40 billion could have supported schools, health care and food programs - so where did it go?

Chevron knows exactly how much it paid to each country. But they won't say. And without any information on these secret payments, poor communities can't demand their fair share - to send their children to school, create jobs and escape poverty and hunger.

Tell Chevron to open the books on its secret payments so that the world can follow the money and help put it toward real development.

In less than a week, Chevron will hold its annual shareholder meeting. This is our moment to demand that Chevron finally come clean. Greater transparency and accountability will stabilize countries and help Chevron in the long run.

Chevron won't even provide a basic accounting of how much money goes to each country - so there's no transparency, no accountability, and no way for poor people to call for their fair share.

That means people whose lands are yielding up billions of dollars in oil revenues still face chronic hunger and poverty. It means some officials remain free to enrich themselves with no public oversight. This makes it hard for citizens and watchdog groups to follow the money and keep officials honest.

Our partner, Oxfam America, has met with Chevron multiple times, but they keep refusing to disclose. So they have filed a shareholder proposal for Chevron's May 26th annual meeting, by which shareholders can exercise their rights and ask Chevron to open the books on its secret payments - and in partnership with Oxfam America we're also making it easy for people like you to put direct pressure on Chevron.

Other oil and mining companies disclose this information, and Chevron should join them - especially since more transparency will actually help Chevron in the long run by stabilizing countries. If the company agrees to change its policies, it could be a watershed moment across the oil, gas, and mining industries.

Tell Chevron to stop the back-room deals that open the door to corruption and keep people in poverty.

Chevron advertises itself as a protector of the planet. So why isn't it agreeing to let the public see what it pays to foreign governments?

With your help, we can pressure Chevron to make a real change in its policies - and help millions of poor people in the process. Please share this alert with your friends and family.

Thank you,

- The Change.org team in partnership with Oxfam America

Whither the Resource Curse?

The backlash is coming!

Apparently, economists are now discovering that getting more money doesn’t always make you poorer.

Who woulda thought it!

What we seem to have experienced over the past few years is a massive smart-arsed-economist Freakonomics-syle “counterintuitive finding”-obsession FAIL.

Yes, free money accruing to governments (resources or aid) probably doesn’t do much for their accountability, but does this governance effect really outweigh the free-money effect? Are the institutional effects of free-money so damaging that free money makes countries poorer? Or are we just trying too hard to be clever and “counterintuitive.”?

(As a final aside - the resource/aid/free-money curse only exist when the money is flowing to the government. Giving oil revenues or aid directly to poor people rather than to their governments is obviously logistically more difficult, but ameliorates this problem entirely).