Aid and Rent-Driven Growth: Mauritania, Kenya and Mozambique Compared

This paper conceptualises foreign aid as a geopolitical form of rent in order to help distinguish the conditions under which aid is detrimental to sustained economic recovery from those where it is beneficial. Foreign aid shares with natural resource rent and contrived (i.e., government monopoly) rent the property of being a large revenue stream that is detached from the economic activity that generates it, and elicits political contests for its capture. Rent-driven models suggest such contests have two adverse effects: (i) they deflect government incentives into rent-channelling at the expense of promoting wealth creation; and (ii) the resulting political allocation of the rent distorts the economy and precipitates a growth collapse, which is protracted. In this context, the three principal causes of aid failure identified in the literature (corruption, a poor policy environment and Dutch disease effects) are all symptoms of the destabilizing impact of rent streams on immature political economies. Consequently, the deployment of foreign aid to revive collapsed economies runs the risk of perpetuating rent-seeking and thereby postponing essential economic restructuring. This paper compares the varied impacts of aid on the development trajectories of Mauritania, Kenya and Mozambique. It argues ...Africa, aid, rent, resource curse, economic development

Natural Resources, Development Models and Sustainable Development

This paper starts out from the optimistic assumption that the basic policies for environmental economic development are known but uncertainties surround the speed of their adoption. In many developing countries the key obstacle is poor governance: consequently, renewable resources continue to be mined, non-renewable resources are depleted irresponsibly, and reductions in pollution intensity lag. Recent research identifies resource abundance as an important cause of policy failure. This is because the primary sector remains large in relation to GDP so that differences in the scale of natural resource rents (and in their socio-economic linkages) condition macro policy in important ways. Most developing countries are resource-rich, a condition that engenders predatory political states that deploy resource rents in ways that cumulatively distort the economy so it falls into a staple trap, which undermines economic growth and environmentally sustainable policies. Sound macroeconomic policy is critical to the success of microeconomic measures like much of environmental policy, a fact often neglected by environmental reformers. There are two implications of this. First, in the long term, improved governance will enhance environmentally sustainable management of: renewable resources (by taking account of the total economic value of resources); finite resources (guided by the need to maintain genuine saving); and the global pollution sinks (by flattening the environmental Kuznets curve). Second, until such improvements occur, environmental policies are likely to underperform unless they are adapted to take account of flawed macro policies. Environmental reformers therefore need to support efforts by the international financial institutions to improve macroeconomic management.Environmental Economics and Policy, International Development, Resource /Energy Economics and Policy,

Patterns of Rent-Extraction and Deployment in Developing Countries: Implications for Governance, Economic Policy and Performance

natural resources, government incentives, development trajectory

Patterns of rent-extraction and deployment in developing countries: Implications for governance, economic policy and performance

Rents tend to be relatively high in developing countries and also very fungible, so that differences in the scale of the rent and in its distribution among economic agents profoundly affect the nature of the political state and the development trajectory. This paper identifies two basic trajectories to a high-income democracy linked to the scale and deployment of rents. Low-rent countries tend to engender developmental political states that competitively diversify the economy and sustain rapid per capita GDP (PCGDP) growth, which strengthens three key sanctions against anti-social governance (political accountability, social capital and the rule of law) to achieve endogenous democratization that is incremental. In contrast, rent-rich countries are likely to experience a slower and more erratic transition. This is because high rents tend to nurture non-developmental (predatory) political states whose deployment of the rent locks the economy into a staple trap, which carries a high risk of a growth collapse. The events presaging a growth collapse weaken sanctions against anti-social governance. However, a growth collapse may abruptly trigger democracy if exogenous factors are favourable, although such a change is likely to prove unstable and prone to regression. Very preliminary tests of the link between PCGDP growth and sanctions against antisocial governance suggest that social capital and law strengthen as predicted by the models for low-rent countries, but political accountability lags. Rent-rich countries exhibit the expected weaker link between PCGDP growth and democratization, an outcome consistent with a more erratic transition towards a high-income democracy

Aid and rent-driven growth: Mauritania, Kenya and Mozambique compared

This paper conceptualises foreign aid as a geopolitical form of rent in order to help distinguish the conditions under which aid is detrimental to sustained economic recovery from those where it is beneficial. Foreign aid shares with natural resource rent and contrived (i.e., government monopoly) rent the property of being a large revenue stream that is detached from the economic activity that generates it, and elicits political contests for its capture. Rent-driven models suggest such contests have two adverse effects: (i) they deflect government incentives into rent-channelling at the expense of promoting wealth creation; and (ii) the resulting political allocation of the rent distorts the economy and precipitates a growth collapse, which is protracted. In this context, the three principal causes of aid failure identified in the literature (corruption, a poor policy environment and Dutch disease effects) are all symptoms of the destabilizing impact of rent streams on immature political economies. Consequently, the deployment of foreign aid to revive collapsed economies runs the risk of perpetuating rent-seeking and thereby postponing essential economic restructuring. This paper compares the varied impacts of aid on the development trajectories of Mauritania, Kenya and Mozambique. It argues that successful aid deployment requires: recognition that aid modalities differentiate aid’s effectiveness; stronger public accountability; and the construction of a cohesive pro-reform political constituency. The paper proposes a dual track strategy as a politically practical means of deploying geopolitical rent to restructure distorted economies. – Africa ; aid ; rent ; resource curse ; economic developmen

The Resource Curse and Rentier States in the Caspian Region : A Need for Context Analysis

Although much attention is paid to the Caspian region with regard to energy issues, the domestic consequences of the region’s resource production have so far constituted a neglected field of research. A systematic survey of the latest research trends in the economic and political causalities of the resource curse and of rentier states reveals that there is a need for context analysis. In reference to this, the paper traces any shortcomings and promising approaches in the existent body of literature on the Caspian region. Following on from this, the paper then proposes a new approach; specifically, one in which any differences and similarities in the context conditions are captured. This enables a more precise exploration of the exact ways in which they form contemporary post-Soviet Caspian rentier states.Obwohl der Region am Kaspischen Meer im Zuge von Energiediskursen große Aufmerksamkeit zuteil wird, stellen die innerstaatlichen Folgen der Ressourcenproduktion in der Region ein bislang vernachlässigtes Forschungsfeld dar. Ein systematischer Überblick über die jüngsten Forschungstrends zu wirtschaftlichen und politischen Kausalzusammenhängen des Ressourcenfluchs und zu Rentierstaaten offenbart die Notwendigkeit von Kontextanalysen. Hierauf Bezug nehmend, analysiert der Aufsatz sowohl die Mängel als auch viel versprechende Ansätze in der betreffenden Literatur zur Region am Kaspischen Meer. Der Aufsatz stellt letztendlich einen neuen Ansatz vor, der Unterschiede und Gemeinsamkeiten in den Kontextbedingungen erfasst, um zu erforschen, wie diese die gegenwärtigen post-sowjetischen Rentierstaaten in der Region am Kaspischen Meer tatsächlich prägen

The Dutch Disease in Reverse: Iceland's Natural Experiment

For a long time, abundant natural resources brought Iceland a high and volatile real exchange rate with adverse effects on manufacturing and services. During 2003-2008, another national treasure, the sovereign’s AAA rating, was used by privatized banks to attract foreign capital, elevating the real exchange rate even further. The financial collapse and the associated collapse of the currency in 2008 left the country with a large foreign debt which offset some of the effect of the natural resources on the real exchange rate. In effect, this was the Dutch disease in reverse as witnessed, in particular, by a massive increase in the number of tourists following the financial collapse. This paper discusses the behavior of the exchange rate of the Icelandic króna before and after 2008 as well as its relationship to natural resources, capital flows, output, exports and imports, including tourism