Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!


Monday, July 23, 2007

 
Hostage situation

I have written part Four of the "Freakonomics" review. Entitled "Freakiology", it deals with the somewhat patronising and self-contradictory relationship that Freakonomics has with sociology.

However, this post is being held for ransom. It won't appear on the blog unless a clear half-dozen of my regular readers write to their MPs in support of the political asylum for Iraqi translators campaign. I am prepared to take your word for it, but get your finger out. NB that the target of six letters is subject to upward and downward revision as I don't really know what the readership of this blog is. Yes, sending the form letter counts, but it would be better to write your own. Letters to media contacts also count, and if the same reader writes to an MP and a media outlet I will count that as two letters.

By the way, in a display of the horrific intellectual dishonesty which is my trademark, I didn't mention on CT (because it might have made the campaign less popular) something which I think the slightly more grown up D^2D audience can probably cope with. Which is to say, that if we do have a blanket amnesty, we're quite likely to be letting in at least a couple of dozen of actual terrorists - the fact that the ranks of Army interpreters contain a fair few double agents of the insurgency is well known, and then there's the families to consider. So in other words, this humanitarian gesture could end up with us importing another 7/7. On the other hand a) it just seems so fucking unseemly for us to be worrying about the possibility of a single domestic terrorist attack when there are 655,000 plus Iraqis dead in this civil war we've unleashed and b) I bet I travel on the Tube more than you do. Not to mention Rachel North agrees with the campaign, so if she can handle the risk so can we.
38 comments this item posted by the management 7/23/2007 03:58:00 AM

Thursday, July 12, 2007

 
Poetry Corner, part 3

Yes, I did just buy the collected works of Roger McGough, do you have a problem with that?

"It is not as though there are not more accurate descriptions available to politicians and reporters: to say 'suspected terrorist' or 'terrorism suspect', or even the headline-friendly 'terror suspect' does not carry the same prejudicial charge. But 'terrorist suspect' sounds sexier, more arresting; it gets the buzzword 'terrorist' into the mind first. It may look difficult to pronounce quickly, until you realise you don't have to pronounce the 't' in the middle but can elide it into a long hiss of disapproval: 'terrorisssssssuspect'. Furthermore it has, out of any of the alternatives, the most musically satisfying rhythm, as you trip through the troika of 'terrorist' and land with two satisfying hammer-blows on 'suspect'. In a lighter mood, you could even sing it to the tune of 'Eleanor Rigby'".


- Steven Poole, "Unspeak", p149



. Terrorist suspect

Ahhhhhhhhhhh look at all the lovely Unspeak
yahhhhhh, wontcha doublethink and Newspeak?


Terrorist suspect.
Active denial, exclusion wall, Friends of the Earth
Partial birth

Radical cleric
Homeland security, turning point, tipping point, truce
Disgusting abuse

Asymmetric warfare
Ideology
Coalition forces
Moral clarity

Questioned by experts
Kosova, Kosovo, tax relief, right to exist
Postmodernist

Homicide bombers
Pro-choice, Enlightenment Values, disgusting regime
American Dream

only some percentage
Intelligent design
oh, collateral damage
reform and realign

yahhhhh, check out all the lovely Unspeak
aaaaaaaaaaaaahhh, won't you stick it in yer thinktank?
Aaaaah look at all the lovely Unspeak





13 comments this item posted by the management 7/12/2007 03:02:00 AM
 
A brief note on "Shorter"

I have mentioned this once or twice, but this is the official statement; the blog concept "Shorter" is public domain. There is no need to credit me. I am grateful and pleased for the links (which are basically the only backlinks this blog gets nowadays), but there is no obligation at all - I'm slightly embarrassed that people might think I was insisting it or declaring copyright or something. The BusyBusyBusy blog did a lot more with the concept than I ever did.
1 comments this item posted by the management 7/12/2007 01:31:00 AM

Tuesday, July 10, 2007

 
Me versus Martin Bright

Maybe it's the old civil servant in me, but I bloody hate it when people mess around with the Chatham House rules. Whatever one thinks about Inayat Bunglawala, it's a pure and simple discourtesy to whoever organised the meeting.

Labels:


1 comments this item posted by the management 7/10/2007 06:07:00 AM

Monday, July 09, 2007

 
Feel the Fusion!

I have bought the "Trio of Doom" album. It is legendarily awful (although the bloke at blogcritics seems to like it, I tend to take the fact that the trio immediately broke up amid atrocious recriminations and the tracks haven't been released for 27 years as probably informative). It was only 8 quid though and I am a big John McLaughlin fan. JMcL's liner notes are really quite hilarious in the extent to which he comments on what lovely people his bandmates were and how the "Havana Jams" US State Department cultural exchange project was a thoroughly worthwhile diplomatic initiative, while clearly unable to bring himself to write a word about the actual music. Even the jazz hack's jazz hack, Bill Milkowski, who can always be relied on for 500 words of nostalgic hagiography of the "importance" of any jazz recording, no matter how terrible, is slightly qualified in his enthusiasm. I'll listen to it his evening and tell you how I got on.

While rooting around for links, I found this bit by Pat Metheny on the subject of Kenny G. I won't tell you whether he's for or against.

Update: it is ... pretty bad. There is a genuinely excellent Tony Williams drum solo to begin the record, but this can't justify a whole album on its own. The live tracks are as appalling as they are renowned to be; Pastorius really does play in a different key to the rest of the band, and there's not much in the way of mixing that can be done to compensate for this. JMcL's guitar playing is fantastic throughout though, at times sounding weirdly reminiscent of 90s indie also-rans The House Of Love. On the whole I'm glad I bought it.

Labels:


6 comments this item posted by the management 7/09/2007 05:52:00 AM

Wednesday, July 04, 2007

 
Once an idiot, always an idiot is the way to bet

also residing in the "when I get a minute" file, Messrs Ed Husain, Hasan Butt, and all the other born-again ex-terrorisses and providers of "edgy" Islamonazi conspiracy theories to the commentariat. My general theme is going to be that while the path from "sensible analyst of current affairs who is entirely worth listening to" to "self-aggrandising ideological halfwit" is a well-trodden one, those taking the opposite path are very few and far between. Hasan Butt, in particular, was such an obvious Walter Mitty and gobshite in 2005 that I find it very unlikely indeed that he has become a modern Cato now that he appears to have crossed over to our side.

Can any readers come up with counterexamples? I am beginning to think that "moron" is an absorbing state, and I am describing an actual null set here. Maybe Winston Churchill?
27 comments this item posted by the management 7/04/2007 07:07:00 AM
 
Afrobollocks

I clearly need to develop a scorecard for this sort of thing ...

"old Africa hand" - 3 cliche points
"Swiss bank accounts" - 5 cliche points.

on the other hand, he does at least avoid the use of a definite article before the country names Yemen, Congo, Sudan or Lebanon, and he doesn't witter about "tribal politics", so it could be worse. More to come (particularly on the IMO wildly asinine doctrine of "natural resource curse"), I hope.
36 comments this item posted by the management 7/04/2007 06:36:00 AM


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monetary pathologies -->
bad economic performance

holds, then that's enough for me to say that there's a form of a natural resource curse. Just like if

abundance of natural resources -->
a non-diversified economy subject to terms of trade shocks -->
bad economic performance

or if
abundance of natural resources -->
greedy corrupt governments in conjunction with foreign corporations practicing extractive policies -->
bad economic performance.

At least be more specific damn it.7/05/2007 07:46:00 AM|W|P|Anonymous dd|W|P|I want to see a paper that examines the natural resource curse and then says "ah but when we look at countries with similar degrees of foreign finance the relationship disappears". Point me to it. You're still hand waving you know.

No, you're the one who is hand-waving, and this is exactly what I mean when I suggested to Chris that it's a fantastic example of the way that economists try to talk historical explanations out of existence. The activities of the ITT corporation in Chile, for example, or the Seven Sisters, are fantastically well-known and well-researched. You're trying to pretend that if you could find a country where the % of foreign investment matched Honduras, then it would make the Dole Corporation's activities there just fine. And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous". This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And now you're throwing out the channels you don't like, but which might be true as "not really natural resource course" simply because they make the strawman harder to construct and because they don't jive with your preferred thesis

No, I'm throwing them out because they were rejected in the original Sachs and Warner paper and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people. Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

Like I said, no one thinks that natural resources by themselves have a super natural power to thrust you into poverty. There's gotta be a channel

As I say above, this is like abstract theorising about the possible "channels" which account for the empirical correlation between the coolness and redness of one's sports car and the likelihood of it getting keyed in the pub car park. It's blame-the-victim stuff.7/05/2007 07:52:00 AM|W|P|Anonymous dd|W|P|Just to make this clearer - there really aren't so very many regions of the world that have valuable natural resources that we need to go around creating summary population statistics and carrying out linear regressions (or any other kind of regressions). It's actually possible to pick up a stack of history books and ask "why is Africa in such a bad way?", "why is Latin American in such a bad way?" etc. And the common factor in these cases is colonialism. In non-resource-rich countries, the level of development today correlates strongly with the number of slaves extracted during the transatlantic trade - not a different phenomenon.7/05/2007 08:16:00 AM|W|P|Blogger Alex|W|P|Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

As most people live in the non-resources sector, this is surely not an argument *against* its importance.7/05/2007 08:43:00 AM|W|P|Anonymous dd|W|P|Well not really - as I say, was it really bad news for the UK that we struck North Sea Oil? Most people in California don't work in technology, but Silicon Valley is good for California, even though its growth has probably been a drag on the non-tech economy of California. "Last of the Summer Wine" was probably bad for the non-tourist sector in Holmfirth.

In order to get aggregate negative effects from Dutch Disease type events, you have to get seriously into the kind of long-term, learning-by-doing prodcutivity arguments that don't really make much sense in the context of a nonindustrialised economy. In order to get a result that Dutch disease could make things worse for the majority of people, you have to assume some quite weird things about ownership and employment, and zero government reaction at all - in otherwise, you have to assume something like colonialism, in which case the problem isn't the exchange rate, it's the expropriation.7/05/2007 09:12:00 AM|W|P|Blogger ejh|W|P|Anybody here read The Pearl by John Steinbeck?7/05/2007 01:45:00 PM|W|P|Blogger YouNotSneaky!|W|P|No, I'm throwing them out because they were rejected in the original Sachs and Warner paper

Are you reading the same Sachs and Warner as I am or are you just making shit up as you go along?

http://www.nber.org/papers/w5398.v5.pdf

"In the seventeenth century, resource poor Netherlands eclipsed Spain, despite the overflow of gold and silver from the Spanish colonies in the New World"

From the introduction, not really discussed in the rest of the paper as it is a contemporary not a historical study.

Also on this whole bad institutions thing:

"This negative relationship holds true even after controlling for variables found to be important for economic growth, such as ... government efficiency"

(from the freakin' abstract)

"There is only weak evidence that primary resource intensity is associated with poorer bureaucratic quality"

So no, it's not about corrupt governments but something else. Maybe;

"Our main conclusion is that the estimated direct effect of SXP (natural resource abundance – the one most likely due to DD) on growth is about twice as large as all the indirect effects combined. Moreover, of these indirect effects, our estimates indicate that the indirect effect operating through openness is by far the largest. These results lend modest support to the view that the dynamic Dutch disease effects we emphasize in the growth model … are qualitatively important."

"qualitatively important" does not sound like "rejected".

and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people

Name it so I can know exactly what it is you're referring to rather than trying to argue against or for some straw man you constructed.


Also, on the case of Malaysia:
"We postulate and find supporting evidence for a U-shaped relationship between openness and resource intensity. Our reasoning is as follows. Resource abundance squeezes the manufacturing sector as in the Dutch Disease. In almost all countries, the squeeze of manufactures provokes some protectionist response that aims to promote industrialization despite the Dutch Disease effects… Two interesting examples on the positive part of the U are Malaysia and Saudi Arabia. These countries are extremely resource rich and also have a long history of open trade."

And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous".

Oh, bullshit. The Acemoglu and the Engerman and Sokoloff I mentioned earlier do exactly that - look at the history. And again, what specific papers in the NRC literature are you objecting too? What version, what channel? Or is this just the standard cute "I take on a popular mainstream economic idea in order to look like a bad ass" posture?


This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And this is exactly the sort of completely irrelevant and incorrect empty assertion - gotta get the kick in at the neoclassicals you know - that sets the tone for this discussion.

Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?7/05/2007 01:50:00 PM|W|P|Blogger YouNotSneaky!|W|P|Hell, SW mentions Prebisch in a positive light - since that famous apologist for colonialism and vigorous supporter of foreign corporations was in some ways an originator of (a form of) the NRC idea.7/05/2007 11:32:00 PM|W|P|Anonymous dd|W|P|Radek, the S&W paper is about "resource curse". Resource curse means that resource-rich countries have a growth penalty relative to resource-poor countries. Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper (don't have JSTOR at my desk but it's in there).

Remember that there is a theoretical NRC literature too, which is if anything bigger than the empirical literature (of which I take Sala-i-Martin as representative of the post Sachs work). As Captain C says above, it's treated as a "stylised fact" these days, which people try to explain or come up with patronising solutions for (nearly all of which involve removing valuable things from the governments of the countries that own them). Have a quick google search and see how many pages you have to scroll through to find a single paper that acknolwedges that foreigners might have something to do with the problem.7/06/2007 08:57:00 AM|W|P|Blogger YouNotSneaky!|W|P|Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper

No, as I indicate above SW think the NRC curse takes place through "dynamic Dutch-Disease" - Dutch Disease plus learning by doing - rather than through corruption etc.

SiM&Sub on the other hand do think it's about corruption; "Our key results are in sharp contrast to the commonly-held view about the impact of natural resources (especially Sachs and Warner, 1995)"(my emphasis)

There's more I could write here on the effect of colonialism (which would obviously effect level but not necessarily the growth rate after independence) vs. natural resource curse, but I'll wait till you write something full up.7/06/2007 03:02:00 PM|W|P|Anonymous nick s|W|P|Ferguson's star power apparently leads him to believe that he can write way outside his speciality (German economic history, mate) and not end up baring his arse. It's one thing to market yourself as Dr Hoorah McEmpire from the side of the white folks, but it's a bit rich to reinvent yourself as a neo-post-colonialist.

Anyway, I'm sure he's got lots of eager Harvard graduate students doing the primary research for his next book, which will be a curiously unironic echo of Nostromo.7/06/2007 03:08:00 PM|W|P|Anonymous nick s|W|P|Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?

Well, the division between the one and the other is a fluid and interesting one.7/07/2007 01:30:00 AM|W|P|Blogger Martin Wisse|W|P|Dutch disease? I thought that our reluctance to have Pershing tactical nukes and cruise missiles stationed in our country was the Dutch disease?

The economic trouble the Netherlands went through in the sixties, and later in the late seventies/early eighties had nothing to do wit suddenly discovering natural gas reserves and everything to do with having several high employement industries (textiles, coal mines first, later ship building and such) go kaput because they couldn't compete on the world markets anymore.

Having the income from natural gas helped there, as it meant the government was able to spent more helping alleviate the effects of the collapse of these industries.7/08/2007 09:38:00 AM|W|P|Blogger Alex|W|P|One of the reasons for them being unable to compete was that the gas caused the exchange rate to climb, hence making their products very expensive.

That's yer Dutch disease.7/08/2007 01:21:00 PM|W|P|Anonymous Phil|W|P|But was a high exchange rate inevitable? Robin Ramsay suggested a while ago that the informal Treasury dictum "either North Sea oil or manufacturing industry, but not both" should have read "North Sea oil, manufacturing industry and the City - pick two".7/09/2007 01:29:00 AM|W|P|Anonymous dd|W|P|Martin is correct that it's quite a controversial question in the literature (in as much as something from thirty years ago can be controversial) whether the Netherlands in the 1970s is actually a good example of the phenomenon which is called "Dutch Disease" these days - the original description comes from the Economist magazine rather than anything rigorous. And the Netherlands economy is in pretty darn good shape today.

To be honest, I would have picked "North Sea Oil and the City, thanks" off Phil and Robin Ramsay's menu (albeit I am hardly unbiased). As I mentioned to Alex, it is not as if UK manufacturing industry was the envy of the world in 1978, there were serious problems of under-training, under-investment, poisonous industrial relations and really bad non-price competitiveness which can't all be blamed on oil or the City. The rest of his book on New Labour (which I seem to remember reading that bit in) is pretty good though.

(btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries).7/09/2007 02:59:00 AM|W|P|Anonymous dearieme|W|P|What classification can identify rubber as a "natural resource" in Thailand?7/09/2007 04:12:00 AM|W|P|Blogger Alex|W|P|BTW, I think I've solved Iraq. We should just blow up the oil fields. Like destroying the Afghans' poppy crop!7/09/2007 06:19:00 AM|W|P|Anonymous dd|W|P|What classification can identify rubber as a "natural resource" in Thailand?

errrm, it's not a manufactured good, it's valuable (much more so in the early part of the last century before synthetic alternatives to latex were discovered) and there's quite a lot of it in Thailand. Expand a little? (It's also not really like opium in that although you can plant more or less of it and it has a limited geographical range, rubber trees take 5-6 years to grow, so if you want guaranteed access to rubber, you need to either trade with or own one of a small number of countries, as the Germans found out).7/15/2007 01:20:00 PM|W|P|Blogger ejh|W|P|btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries

Hard to believe the latter are underrated though, since they're the people best placed to say how great they are (and not at all disinclined to say so).7/20/2007 07:32:00 PM|W|P|Anonymous Maynard Handley|W|P|dd I think you are raising hackles because you are (apparently wilfully) ignoring two possible "channels" of "the resource curse".

The first, more obvious one, is that they provide a focal point for ethnic tensions. If there weren't a concentrated pool of oil at a few limited places in Iraq, it would probably be a whole lot easier to negotiate some sort of divorce settlement between the various warring parties. As it is, Sunni, Shia and Kurds are bound together by a mutual belief that they deserve some of the oil goodies, and so simply splitting apart ala Yugoslavia appears infeasible. Similarly for Sudan. Similarly for Nigeria. Similarly for diamonds in west Africa.
This is not a universal explanation. I don't know that it covers Congo, for example. But I suspect the regressions would show a robust correlation.

The second, IMHO more interesting channel, is the pathological state. The idea here is that "normal" states survive by some sort of fairly broad taxation, and that they are consequently compelled to deliver fairly broad services as quid pro quo, otherwise people get angry and do what they can to turf out those in power. Resource rich states, on the other hand, can survive by leeching off this one industry and channeling the money as they wish. The locals may not be thrilled at their lack of schools and hospitals, but they're not being much taxed so they grin and bear it. Once again one can present counter-examples, but I have listened to talks given by people who claim this is a robust correlation.
This second case is especially interesting in that it picks up cases that many people would not automatically consider as having been "cursed" until they look at the details. South Africa is, IMHO, the obvious example --- basically a flat economy since the late 1960s, with a government able to keep the country fscked up for years because of gold. Non-Africa oil-rich states are a second example (eg Saudi Arabia or Mexico). Many of them are not yet obviously cursed, but the trajectory they are on seems pretty obvious.-->
monetary pathologies -->
bad economic performance

holds, then that's enough for me to say that there's a form of a natural resource curse. Just like if

abundance of natural resources -->
a non-diversified economy subject to terms of trade shocks -->
bad economic performance

or if
abundance of natural resources -->
greedy corrupt governments in conjunction with foreign corporations practicing extractive policies -->
bad economic performance.

At least be more specific damn it.7/05/2007 07:46:00 AM|W|P|Anonymous dd|W|P|I want to see a paper that examines the natural resource curse and then says "ah but when we look at countries with similar degrees of foreign finance the relationship disappears". Point me to it. You're still hand waving you know.

No, you're the one who is hand-waving, and this is exactly what I mean when I suggested to Chris that it's a fantastic example of the way that economists try to talk historical explanations out of existence. The activities of the ITT corporation in Chile, for example, or the Seven Sisters, are fantastically well-known and well-researched. You're trying to pretend that if you could find a country where the % of foreign investment matched Honduras, then it would make the Dole Corporation's activities there just fine. And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous". This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And now you're throwing out the channels you don't like, but which might be true as "not really natural resource course" simply because they make the strawman harder to construct and because they don't jive with your preferred thesis

No, I'm throwing them out because they were rejected in the original Sachs and Warner paper and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people. Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

Like I said, no one thinks that natural resources by themselves have a super natural power to thrust you into poverty. There's gotta be a channel

As I say above, this is like abstract theorising about the possible "channels" which account for the empirical correlation between the coolness and redness of one's sports car and the likelihood of it getting keyed in the pub car park. It's blame-the-victim stuff.7/05/2007 07:52:00 AM|W|P|Anonymous dd|W|P|Just to make this clearer - there really aren't so very many regions of the world that have valuable natural resources that we need to go around creating summary population statistics and carrying out linear regressions (or any other kind of regressions). It's actually possible to pick up a stack of history books and ask "why is Africa in such a bad way?", "why is Latin American in such a bad way?" etc. And the common factor in these cases is colonialism. In non-resource-rich countries, the level of development today correlates strongly with the number of slaves extracted during the transatlantic trade - not a different phenomenon.7/05/2007 08:16:00 AM|W|P|Blogger Alex|W|P|Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

As most people live in the non-resources sector, this is surely not an argument *against* its importance.7/05/2007 08:43:00 AM|W|P|Anonymous dd|W|P|Well not really - as I say, was it really bad news for the UK that we struck North Sea Oil? Most people in California don't work in technology, but Silicon Valley is good for California, even though its growth has probably been a drag on the non-tech economy of California. "Last of the Summer Wine" was probably bad for the non-tourist sector in Holmfirth.

In order to get aggregate negative effects from Dutch Disease type events, you have to get seriously into the kind of long-term, learning-by-doing prodcutivity arguments that don't really make much sense in the context of a nonindustrialised economy. In order to get a result that Dutch disease could make things worse for the majority of people, you have to assume some quite weird things about ownership and employment, and zero government reaction at all - in otherwise, you have to assume something like colonialism, in which case the problem isn't the exchange rate, it's the expropriation.7/05/2007 09:12:00 AM|W|P|Blogger ejh|W|P|Anybody here read The Pearl by John Steinbeck?7/05/2007 01:45:00 PM|W|P|Blogger YouNotSneaky!|W|P|No, I'm throwing them out because they were rejected in the original Sachs and Warner paper

Are you reading the same Sachs and Warner as I am or are you just making shit up as you go along?

http://www.nber.org/papers/w5398.v5.pdf

"In the seventeenth century, resource poor Netherlands eclipsed Spain, despite the overflow of gold and silver from the Spanish colonies in the New World"

From the introduction, not really discussed in the rest of the paper as it is a contemporary not a historical study.

Also on this whole bad institutions thing:

"This negative relationship holds true even after controlling for variables found to be important for economic growth, such as ... government efficiency"

(from the freakin' abstract)

"There is only weak evidence that primary resource intensity is associated with poorer bureaucratic quality"

So no, it's not about corrupt governments but something else. Maybe;

"Our main conclusion is that the estimated direct effect of SXP (natural resource abundance – the one most likely due to DD) on growth is about twice as large as all the indirect effects combined. Moreover, of these indirect effects, our estimates indicate that the indirect effect operating through openness is by far the largest. These results lend modest support to the view that the dynamic Dutch disease effects we emphasize in the growth model … are qualitatively important."

"qualitatively important" does not sound like "rejected".

and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people

Name it so I can know exactly what it is you're referring to rather than trying to argue against or for some straw man you constructed.


Also, on the case of Malaysia:
"We postulate and find supporting evidence for a U-shaped relationship between openness and resource intensity. Our reasoning is as follows. Resource abundance squeezes the manufacturing sector as in the Dutch Disease. In almost all countries, the squeeze of manufactures provokes some protectionist response that aims to promote industrialization despite the Dutch Disease effects… Two interesting examples on the positive part of the U are Malaysia and Saudi Arabia. These countries are extremely resource rich and also have a long history of open trade."

And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous".

Oh, bullshit. The Acemoglu and the Engerman and Sokoloff I mentioned earlier do exactly that - look at the history. And again, what specific papers in the NRC literature are you objecting too? What version, what channel? Or is this just the standard cute "I take on a popular mainstream economic idea in order to look like a bad ass" posture?


This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And this is exactly the sort of completely irrelevant and incorrect empty assertion - gotta get the kick in at the neoclassicals you know - that sets the tone for this discussion.

Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?7/05/2007 01:50:00 PM|W|P|Blogger YouNotSneaky!|W|P|Hell, SW mentions Prebisch in a positive light - since that famous apologist for colonialism and vigorous supporter of foreign corporations was in some ways an originator of (a form of) the NRC idea.7/05/2007 11:32:00 PM|W|P|Anonymous dd|W|P|Radek, the S&W paper is about "resource curse". Resource curse means that resource-rich countries have a growth penalty relative to resource-poor countries. Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper (don't have JSTOR at my desk but it's in there).

Remember that there is a theoretical NRC literature too, which is if anything bigger than the empirical literature (of which I take Sala-i-Martin as representative of the post Sachs work). As Captain C says above, it's treated as a "stylised fact" these days, which people try to explain or come up with patronising solutions for (nearly all of which involve removing valuable things from the governments of the countries that own them). Have a quick google search and see how many pages you have to scroll through to find a single paper that acknolwedges that foreigners might have something to do with the problem.7/06/2007 08:57:00 AM|W|P|Blogger YouNotSneaky!|W|P|Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper

No, as I indicate above SW think the NRC curse takes place through "dynamic Dutch-Disease" - Dutch Disease plus learning by doing - rather than through corruption etc.

SiM&Sub on the other hand do think it's about corruption; "Our key results are in sharp contrast to the commonly-held view about the impact of natural resources (especially Sachs and Warner, 1995)"(my emphasis)

There's more I could write here on the effect of colonialism (which would obviously effect level but not necessarily the growth rate after independence) vs. natural resource curse, but I'll wait till you write something full up.7/06/2007 03:02:00 PM|W|P|Anonymous nick s|W|P|Ferguson's star power apparently leads him to believe that he can write way outside his speciality (German economic history, mate) and not end up baring his arse. It's one thing to market yourself as Dr Hoorah McEmpire from the side of the white folks, but it's a bit rich to reinvent yourself as a neo-post-colonialist.

Anyway, I'm sure he's got lots of eager Harvard graduate students doing the primary research for his next book, which will be a curiously unironic echo of Nostromo.7/06/2007 03:08:00 PM|W|P|Anonymous nick s|W|P|Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?

Well, the division between the one and the other is a fluid and interesting one.7/07/2007 01:30:00 AM|W|P|Blogger Martin Wisse|W|P|Dutch disease? I thought that our reluctance to have Pershing tactical nukes and cruise missiles stationed in our country was the Dutch disease?

The economic trouble the Netherlands went through in the sixties, and later in the late seventies/early eighties had nothing to do wit suddenly discovering natural gas reserves and everything to do with having several high employement industries (textiles, coal mines first, later ship building and such) go kaput because they couldn't compete on the world markets anymore.

Having the income from natural gas helped there, as it meant the government was able to spent more helping alleviate the effects of the collapse of these industries.7/08/2007 09:38:00 AM|W|P|Blogger Alex|W|P|One of the reasons for them being unable to compete was that the gas caused the exchange rate to climb, hence making their products very expensive.

That's yer Dutch disease.7/08/2007 01:21:00 PM|W|P|Anonymous Phil|W|P|But was a high exchange rate inevitable? Robin Ramsay suggested a while ago that the informal Treasury dictum "either North Sea oil or manufacturing industry, but not both" should have read "North Sea oil, manufacturing industry and the City - pick two".7/09/2007 01:29:00 AM|W|P|Anonymous dd|W|P|Martin is correct that it's quite a controversial question in the literature (in as much as something from thirty years ago can be controversial) whether the Netherlands in the 1970s is actually a good example of the phenomenon which is called "Dutch Disease" these days - the original description comes from the Economist magazine rather than anything rigorous. And the Netherlands economy is in pretty darn good shape today.

To be honest, I would have picked "North Sea Oil and the City, thanks" off Phil and Robin Ramsay's menu (albeit I am hardly unbiased). As I mentioned to Alex, it is not as if UK manufacturing industry was the envy of the world in 1978, there were serious problems of under-training, under-investment, poisonous industrial relations and really bad non-price competitiveness which can't all be blamed on oil or the City. The rest of his book on New Labour (which I seem to remember reading that bit in) is pretty good though.

(btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries).7/09/2007 02:59:00 AM|W|P|Anonymous dearieme|W|P|What classification can identify rubber as a "natural resource" in Thailand?7/09/2007 04:12:00 AM|W|P|Blogger Alex|W|P|BTW, I think I've solved Iraq. We should just blow up the oil fields. Like destroying the Afghans' poppy crop!7/09/2007 06:19:00 AM|W|P|Anonymous dd|W|P|What classification can identify rubber as a "natural resource" in Thailand?

errrm, it's not a manufactured good, it's valuable (much more so in the early part of the last century before synthetic alternatives to latex were discovered) and there's quite a lot of it in Thailand. Expand a little? (It's also not really like opium in that although you can plant more or less of it and it has a limited geographical range, rubber trees take 5-6 years to grow, so if you want guaranteed access to rubber, you need to either trade with or own one of a small number of countries, as the Germans found out).7/15/2007 01:20:00 PM|W|P|Blogger ejh|W|P|btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries

Hard to believe the latter are underrated though, since they're the people best placed to say how great they are (and not at all disinclined to say so).7/20/2007 07:32:00 PM|W|P|Anonymous Maynard Handley|W|P|dd I think you are raising hackles because you are (apparently wilfully) ignoring two possible "channels" of "the resource curse".

The first, more obvious one, is that they provide a focal point for ethnic tensions. If there weren't a concentrated pool of oil at a few limited places in Iraq, it would probably be a whole lot easier to negotiate some sort of divorce settlement between the various warring parties. As it is, Sunni, Shia and Kurds are bound together by a mutual belief that they deserve some of the oil goodies, and so simply splitting apart ala Yugoslavia appears infeasible. Similarly for Sudan. Similarly for Nigeria. Similarly for diamonds in west Africa.
This is not a universal explanation. I don't know that it covers Congo, for example. But I suspect the regressions would show a robust correlation.

The second, IMHO more interesting channel, is the pathological state. The idea here is that "normal" states survive by some sort of fairly broad taxation, and that they are consequently compelled to deliver fairly broad services as quid pro quo, otherwise people get angry and do what they can to turf out those in power. Resource rich states, on the other hand, can survive by leeching off this one industry and channeling the money as they wish. The locals may not be thrilled at their lack of schools and hospitals, but they're not being much taxed so they grin and bear it. Once again one can present counter-examples, but I have listened to talks given by people who claim this is a robust correlation.
This second case is especially interesting in that it picks up cases that many people would not automatically consider as having been "cursed" until they look at the details. South Africa is, IMHO, the obvious example --- basically a flat economy since the late 1960s, with a government able to keep the country fscked up for years because of gold. Non-Africa oil-rich states are a second example (eg Saudi Arabia or Mexico). Many of them are not yet obviously cursed, but the trajectory they are on seems pretty obvious.-->
monetary pathologies -->
bad economic performance

holds, then that's enough for me to say that there's a form of a natural resource curse. Just like if

abundance of natural resources -->
a non-diversified economy subject to terms of trade shocks -->
bad economic performance

or if
abundance of natural resources -->
greedy corrupt governments in conjunction with foreign corporations practicing extractive policies -->
bad economic performance.

At least be more specific damn it.7/05/2007 07:46:00 AM|W|P|Anonymous dd|W|P|I want to see a paper that examines the natural resource curse and then says "ah but when we look at countries with similar degrees of foreign finance the relationship disappears". Point me to it. You're still hand waving you know.

No, you're the one who is hand-waving, and this is exactly what I mean when I suggested to Chris that it's a fantastic example of the way that economists try to talk historical explanations out of existence. The activities of the ITT corporation in Chile, for example, or the Seven Sisters, are fantastically well-known and well-researched. You're trying to pretend that if you could find a country where the % of foreign investment matched Honduras, then it would make the Dole Corporation's activities there just fine. And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous". This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And now you're throwing out the channels you don't like, but which might be true as "not really natural resource course" simply because they make the strawman harder to construct and because they don't jive with your preferred thesis

No, I'm throwing them out because they were rejected in the original Sachs and Warner paper and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people. Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

Like I said, no one thinks that natural resources by themselves have a super natural power to thrust you into poverty. There's gotta be a channel

As I say above, this is like abstract theorising about the possible "channels" which account for the empirical correlation between the coolness and redness of one's sports car and the likelihood of it getting keyed in the pub car park. It's blame-the-victim stuff.7/05/2007 07:52:00 AM|W|P|Anonymous dd|W|P|Just to make this clearer - there really aren't so very many regions of the world that have valuable natural resources that we need to go around creating summary population statistics and carrying out linear regressions (or any other kind of regressions). It's actually possible to pick up a stack of history books and ask "why is Africa in such a bad way?", "why is Latin American in such a bad way?" etc. And the common factor in these cases is colonialism. In non-resource-rich countries, the level of development today correlates strongly with the number of slaves extracted during the transatlantic trade - not a different phenomenon.7/05/2007 08:16:00 AM|W|P|Blogger Alex|W|P|Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

As most people live in the non-resources sector, this is surely not an argument *against* its importance.7/05/2007 08:43:00 AM|W|P|Anonymous dd|W|P|Well not really - as I say, was it really bad news for the UK that we struck North Sea Oil? Most people in California don't work in technology, but Silicon Valley is good for California, even though its growth has probably been a drag on the non-tech economy of California. "Last of the Summer Wine" was probably bad for the non-tourist sector in Holmfirth.

In order to get aggregate negative effects from Dutch Disease type events, you have to get seriously into the kind of long-term, learning-by-doing prodcutivity arguments that don't really make much sense in the context of a nonindustrialised economy. In order to get a result that Dutch disease could make things worse for the majority of people, you have to assume some quite weird things about ownership and employment, and zero government reaction at all - in otherwise, you have to assume something like colonialism, in which case the problem isn't the exchange rate, it's the expropriation.7/05/2007 09:12:00 AM|W|P|Blogger ejh|W|P|Anybody here read The Pearl by John Steinbeck?7/05/2007 01:45:00 PM|W|P|Blogger YouNotSneaky!|W|P|No, I'm throwing them out because they were rejected in the original Sachs and Warner paper

Are you reading the same Sachs and Warner as I am or are you just making shit up as you go along?

http://www.nber.org/papers/w5398.v5.pdf

"In the seventeenth century, resource poor Netherlands eclipsed Spain, despite the overflow of gold and silver from the Spanish colonies in the New World"

From the introduction, not really discussed in the rest of the paper as it is a contemporary not a historical study.

Also on this whole bad institutions thing:

"This negative relationship holds true even after controlling for variables found to be important for economic growth, such as ... government efficiency"

(from the freakin' abstract)

"There is only weak evidence that primary resource intensity is associated with poorer bureaucratic quality"

So no, it's not about corrupt governments but something else. Maybe;

"Our main conclusion is that the estimated direct effect of SXP (natural resource abundance – the one most likely due to DD) on growth is about twice as large as all the indirect effects combined. Moreover, of these indirect effects, our estimates indicate that the indirect effect operating through openness is by far the largest. These results lend modest support to the view that the dynamic Dutch disease effects we emphasize in the growth model … are qualitatively important."

"qualitatively important" does not sound like "rejected".

and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people

Name it so I can know exactly what it is you're referring to rather than trying to argue against or for some straw man you constructed.


Also, on the case of Malaysia:
"We postulate and find supporting evidence for a U-shaped relationship between openness and resource intensity. Our reasoning is as follows. Resource abundance squeezes the manufacturing sector as in the Dutch Disease. In almost all countries, the squeeze of manufactures provokes some protectionist response that aims to promote industrialization despite the Dutch Disease effects… Two interesting examples on the positive part of the U are Malaysia and Saudi Arabia. These countries are extremely resource rich and also have a long history of open trade."

And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous".

Oh, bullshit. The Acemoglu and the Engerman and Sokoloff I mentioned earlier do exactly that - look at the history. And again, what specific papers in the NRC literature are you objecting too? What version, what channel? Or is this just the standard cute "I take on a popular mainstream economic idea in order to look like a bad ass" posture?


This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And this is exactly the sort of completely irrelevant and incorrect empty assertion - gotta get the kick in at the neoclassicals you know - that sets the tone for this discussion.

Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?7/05/2007 01:50:00 PM|W|P|Blogger YouNotSneaky!|W|P|Hell, SW mentions Prebisch in a positive light - since that famous apologist for colonialism and vigorous supporter of foreign corporations was in some ways an originator of (a form of) the NRC idea.7/05/2007 11:32:00 PM|W|P|Anonymous dd|W|P|Radek, the S&W paper is about "resource curse". Resource curse means that resource-rich countries have a growth penalty relative to resource-poor countries. Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper (don't have JSTOR at my desk but it's in there).

Remember that there is a theoretical NRC literature too, which is if anything bigger than the empirical literature (of which I take Sala-i-Martin as representative of the post Sachs work). As Captain C says above, it's treated as a "stylised fact" these days, which people try to explain or come up with patronising solutions for (nearly all of which involve removing valuable things from the governments of the countries that own them). Have a quick google search and see how many pages you have to scroll through to find a single paper that acknolwedges that foreigners might have something to do with the problem.7/06/2007 08:57:00 AM|W|P|Blogger YouNotSneaky!|W|P|Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper

No, as I indicate above SW think the NRC curse takes place through "dynamic Dutch-Disease" - Dutch Disease plus learning by doing - rather than through corruption etc.

SiM&Sub on the other hand do think it's about corruption; "Our key results are in sharp contrast to the commonly-held view about the impact of natural resources (especially Sachs and Warner, 1995)"(my emphasis)

There's more I could write here on the effect of colonialism (which would obviously effect level but not necessarily the growth rate after independence) vs. natural resource curse, but I'll wait till you write something full up.7/06/2007 03:02:00 PM|W|P|Anonymous nick s|W|P|Ferguson's star power apparently leads him to believe that he can write way outside his speciality (German economic history, mate) and not end up baring his arse. It's one thing to market yourself as Dr Hoorah McEmpire from the side of the white folks, but it's a bit rich to reinvent yourself as a neo-post-colonialist.

Anyway, I'm sure he's got lots of eager Harvard graduate students doing the primary research for his next book, which will be a curiously unironic echo of Nostromo.7/06/2007 03:08:00 PM|W|P|Anonymous nick s|W|P|Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?

Well, the division between the one and the other is a fluid and interesting one.7/07/2007 01:30:00 AM|W|P|Blogger Martin Wisse|W|P|Dutch disease? I thought that our reluctance to have Pershing tactical nukes and cruise missiles stationed in our country was the Dutch disease?

The economic trouble the Netherlands went through in the sixties, and later in the late seventies/early eighties had nothing to do wit suddenly discovering natural gas reserves and everything to do with having several high employement industries (textiles, coal mines first, later ship building and such) go kaput because they couldn't compete on the world markets anymore.

Having the income from natural gas helped there, as it meant the government was able to spent more helping alleviate the effects of the collapse of these industries.7/08/2007 09:38:00 AM|W|P|Blogger Alex|W|P|One of the reasons for them being unable to compete was that the gas caused the exchange rate to climb, hence making their products very expensive.

That's yer Dutch disease.7/08/2007 01:21:00 PM|W|P|Anonymous Phil|W|P|But was a high exchange rate inevitable? Robin Ramsay suggested a while ago that the informal Treasury dictum "either North Sea oil or manufacturing industry, but not both" should have read "North Sea oil, manufacturing industry and the City - pick two".7/09/2007 01:29:00 AM|W|P|Anonymous dd|W|P|Martin is correct that it's quite a controversial question in the literature (in as much as something from thirty years ago can be controversial) whether the Netherlands in the 1970s is actually a good example of the phenomenon which is called "Dutch Disease" these days - the original description comes from the Economist magazine rather than anything rigorous. And the Netherlands economy is in pretty darn good shape today.

To be honest, I would have picked "North Sea Oil and the City, thanks" off Phil and Robin Ramsay's menu (albeit I am hardly unbiased). As I mentioned to Alex, it is not as if UK manufacturing industry was the envy of the world in 1978, there were serious problems of under-training, under-investment, poisonous industrial relations and really bad non-price competitiveness which can't all be blamed on oil or the City. The rest of his book on New Labour (which I seem to remember reading that bit in) is pretty good though.

(btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries).7/09/2007 02:59:00 AM|W|P|Anonymous dearieme|W|P|What classification can identify rubber as a "natural resource" in Thailand?7/09/2007 04:12:00 AM|W|P|Blogger Alex|W|P|BTW, I think I've solved Iraq. We should just blow up the oil fields. Like destroying the Afghans' poppy crop!7/09/2007 06:19:00 AM|W|P|Anonymous dd|W|P|What classification can identify rubber as a "natural resource" in Thailand?

errrm, it's not a manufactured good, it's valuable (much more so in the early part of the last century before synthetic alternatives to latex were discovered) and there's quite a lot of it in Thailand. Expand a little? (It's also not really like opium in that although you can plant more or less of it and it has a limited geographical range, rubber trees take 5-6 years to grow, so if you want guaranteed access to rubber, you need to either trade with or own one of a small number of countries, as the Germans found out).7/15/2007 01:20:00 PM|W|P|Blogger ejh|W|P|btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries

Hard to believe the latter are underrated though, since they're the people best placed to say how great they are (and not at all disinclined to say so).7/20/2007 07:32:00 PM|W|P|Anonymous Maynard Handley|W|P|dd I think you are raising hackles because you are (apparently wilfully) ignoring two possible "channels" of "the resource curse".

The first, more obvious one, is that they provide a focal point for ethnic tensions. If there weren't a concentrated pool of oil at a few limited places in Iraq, it would probably be a whole lot easier to negotiate some sort of divorce settlement between the various warring parties. As it is, Sunni, Shia and Kurds are bound together by a mutual belief that they deserve some of the oil goodies, and so simply splitting apart ala Yugoslavia appears infeasible. Similarly for Sudan. Similarly for Nigeria. Similarly for diamonds in west Africa.
This is not a universal explanation. I don't know that it covers Congo, for example. But I suspect the regressions would show a robust correlation.

The second, IMHO more interesting channel, is the pathological state. The idea here is that "normal" states survive by some sort of fairly broad taxation, and that they are consequently compelled to deliver fairly broad services as quid pro quo, otherwise people get angry and do what they can to turf out those in power. Resource rich states, on the other hand, can survive by leeching off this one industry and channeling the money as they wish. The locals may not be thrilled at their lack of schools and hospitals, but they're not being much taxed so they grin and bear it. Once again one can present counter-examples, but I have listened to talks given by people who claim this is a robust correlation.
This second case is especially interesting in that it picks up cases that many people would not automatically consider as having been "cursed" until they look at the details. South Africa is, IMHO, the obvious example --- basically a flat economy since the late 1960s, with a government able to keep the country fscked up for years because of gold. Non-Africa oil-rich states are a second example (eg Saudi Arabia or Mexico). Many of them are not yet obviously cursed, but the trajectory they are on seems pretty obvious.-->
monetary pathologies -->
bad economic performance

holds, then that's enough for me to say that there's a form of a natural resource curse. Just like if

abundance of natural resources -->
a non-diversified economy subject to terms of trade shocks -->
bad economic performance

or if
abundance of natural resources -->
greedy corrupt governments in conjunction with foreign corporations practicing extractive policies -->
bad economic performance.

At least be more specific damn it.7/05/2007 07:46:00 AM|W|P|Anonymous dd|W|P|I want to see a paper that examines the natural resource curse and then says "ah but when we look at countries with similar degrees of foreign finance the relationship disappears". Point me to it. You're still hand waving you know.

No, you're the one who is hand-waving, and this is exactly what I mean when I suggested to Chris that it's a fantastic example of the way that economists try to talk historical explanations out of existence. The activities of the ITT corporation in Chile, for example, or the Seven Sisters, are fantastically well-known and well-researched. You're trying to pretend that if you could find a country where the % of foreign investment matched Honduras, then it would make the Dole Corporation's activities there just fine. And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous". This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And now you're throwing out the channels you don't like, but which might be true as "not really natural resource course" simply because they make the strawman harder to construct and because they don't jive with your preferred thesis

No, I'm throwing them out because they were rejected in the original Sachs and Warner paper and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people. Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

Like I said, no one thinks that natural resources by themselves have a super natural power to thrust you into poverty. There's gotta be a channel

As I say above, this is like abstract theorising about the possible "channels" which account for the empirical correlation between the coolness and redness of one's sports car and the likelihood of it getting keyed in the pub car park. It's blame-the-victim stuff.7/05/2007 07:52:00 AM|W|P|Anonymous dd|W|P|Just to make this clearer - there really aren't so very many regions of the world that have valuable natural resources that we need to go around creating summary population statistics and carrying out linear regressions (or any other kind of regressions). It's actually possible to pick up a stack of history books and ask "why is Africa in such a bad way?", "why is Latin American in such a bad way?" etc. And the common factor in these cases is colonialism. In non-resource-rich countries, the level of development today correlates strongly with the number of slaves extracted during the transatlantic trade - not a different phenomenon.7/05/2007 08:16:00 AM|W|P|Blogger Alex|W|P|Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

As most people live in the non-resources sector, this is surely not an argument *against* its importance.7/05/2007 08:43:00 AM|W|P|Anonymous dd|W|P|Well not really - as I say, was it really bad news for the UK that we struck North Sea Oil? Most people in California don't work in technology, but Silicon Valley is good for California, even though its growth has probably been a drag on the non-tech economy of California. "Last of the Summer Wine" was probably bad for the non-tourist sector in Holmfirth.

In order to get aggregate negative effects from Dutch Disease type events, you have to get seriously into the kind of long-term, learning-by-doing prodcutivity arguments that don't really make much sense in the context of a nonindustrialised economy. In order to get a result that Dutch disease could make things worse for the majority of people, you have to assume some quite weird things about ownership and employment, and zero government reaction at all - in otherwise, you have to assume something like colonialism, in which case the problem isn't the exchange rate, it's the expropriation.7/05/2007 09:12:00 AM|W|P|Blogger ejh|W|P|Anybody here read The Pearl by John Steinbeck?7/05/2007 01:45:00 PM|W|P|Blogger YouNotSneaky!|W|P|No, I'm throwing them out because they were rejected in the original Sachs and Warner paper

Are you reading the same Sachs and Warner as I am or are you just making shit up as you go along?

http://www.nber.org/papers/w5398.v5.pdf

"In the seventeenth century, resource poor Netherlands eclipsed Spain, despite the overflow of gold and silver from the Spanish colonies in the New World"

From the introduction, not really discussed in the rest of the paper as it is a contemporary not a historical study.

Also on this whole bad institutions thing:

"This negative relationship holds true even after controlling for variables found to be important for economic growth, such as ... government efficiency"

(from the freakin' abstract)

"There is only weak evidence that primary resource intensity is associated with poorer bureaucratic quality"

So no, it's not about corrupt governments but something else. Maybe;

"Our main conclusion is that the estimated direct effect of SXP (natural resource abundance – the one most likely due to DD) on growth is about twice as large as all the indirect effects combined. Moreover, of these indirect effects, our estimates indicate that the indirect effect operating through openness is by far the largest. These results lend modest support to the view that the dynamic Dutch disease effects we emphasize in the growth model … are qualitatively important."

"qualitatively important" does not sound like "rejected".

and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people

Name it so I can know exactly what it is you're referring to rather than trying to argue against or for some straw man you constructed.


Also, on the case of Malaysia:
"We postulate and find supporting evidence for a U-shaped relationship between openness and resource intensity. Our reasoning is as follows. Resource abundance squeezes the manufacturing sector as in the Dutch Disease. In almost all countries, the squeeze of manufactures provokes some protectionist response that aims to promote industrialization despite the Dutch Disease effects… Two interesting examples on the positive part of the U are Malaysia and Saudi Arabia. These countries are extremely resource rich and also have a long history of open trade."

And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous".

Oh, bullshit. The Acemoglu and the Engerman and Sokoloff I mentioned earlier do exactly that - look at the history. And again, what specific papers in the NRC literature are you objecting too? What version, what channel? Or is this just the standard cute "I take on a popular mainstream economic idea in order to look like a bad ass" posture?


This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And this is exactly the sort of completely irrelevant and incorrect empty assertion - gotta get the kick in at the neoclassicals you know - that sets the tone for this discussion.

Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?7/05/2007 01:50:00 PM|W|P|Blogger YouNotSneaky!|W|P|Hell, SW mentions Prebisch in a positive light - since that famous apologist for colonialism and vigorous supporter of foreign corporations was in some ways an originator of (a form of) the NRC idea.7/05/2007 11:32:00 PM|W|P|Anonymous dd|W|P|Radek, the S&W paper is about "resource curse". Resource curse means that resource-rich countries have a growth penalty relative to resource-poor countries. Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper (don't have JSTOR at my desk but it's in there).

Remember that there is a theoretical NRC literature too, which is if anything bigger than the empirical literature (of which I take Sala-i-Martin as representative of the post Sachs work). As Captain C says above, it's treated as a "stylised fact" these days, which people try to explain or come up with patronising solutions for (nearly all of which involve removing valuable things from the governments of the countries that own them). Have a quick google search and see how many pages you have to scroll through to find a single paper that acknolwedges that foreigners might have something to do with the problem.7/06/2007 08:57:00 AM|W|P|Blogger YouNotSneaky!|W|P|Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper

No, as I indicate above SW think the NRC curse takes place through "dynamic Dutch-Disease" - Dutch Disease plus learning by doing - rather than through corruption etc.

SiM&Sub on the other hand do think it's about corruption; "Our key results are in sharp contrast to the commonly-held view about the impact of natural resources (especially Sachs and Warner, 1995)"(my emphasis)

There's more I could write here on the effect of colonialism (which would obviously effect level but not necessarily the growth rate after independence) vs. natural resource curse, but I'll wait till you write something full up.7/06/2007 03:02:00 PM|W|P|Anonymous nick s|W|P|Ferguson's star power apparently leads him to believe that he can write way outside his speciality (German economic history, mate) and not end up baring his arse. It's one thing to market yourself as Dr Hoorah McEmpire from the side of the white folks, but it's a bit rich to reinvent yourself as a neo-post-colonialist.

Anyway, I'm sure he's got lots of eager Harvard graduate students doing the primary research for his next book, which will be a curiously unironic echo of Nostromo.7/06/2007 03:08:00 PM|W|P|Anonymous nick s|W|P|Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?

Well, the division between the one and the other is a fluid and interesting one.7/07/2007 01:30:00 AM|W|P|Blogger Martin Wisse|W|P|Dutch disease? I thought that our reluctance to have Pershing tactical nukes and cruise missiles stationed in our country was the Dutch disease?

The economic trouble the Netherlands went through in the sixties, and later in the late seventies/early eighties had nothing to do wit suddenly discovering natural gas reserves and everything to do with having several high employement industries (textiles, coal mines first, later ship building and such) go kaput because they couldn't compete on the world markets anymore.

Having the income from natural gas helped there, as it meant the government was able to spent more helping alleviate the effects of the collapse of these industries.7/08/2007 09:38:00 AM|W|P|Blogger Alex|W|P|One of the reasons for them being unable to compete was that the gas caused the exchange rate to climb, hence making their products very expensive.

That's yer Dutch disease.7/08/2007 01:21:00 PM|W|P|Anonymous Phil|W|P|But was a high exchange rate inevitable? Robin Ramsay suggested a while ago that the informal Treasury dictum "either North Sea oil or manufacturing industry, but not both" should have read "North Sea oil, manufacturing industry and the City - pick two".7/09/2007 01:29:00 AM|W|P|Anonymous dd|W|P|Martin is correct that it's quite a controversial question in the literature (in as much as something from thirty years ago can be controversial) whether the Netherlands in the 1970s is actually a good example of the phenomenon which is called "Dutch Disease" these days - the original description comes from the Economist magazine rather than anything rigorous. And the Netherlands economy is in pretty darn good shape today.

To be honest, I would have picked "North Sea Oil and the City, thanks" off Phil and Robin Ramsay's menu (albeit I am hardly unbiased). As I mentioned to Alex, it is not as if UK manufacturing industry was the envy of the world in 1978, there were serious problems of under-training, under-investment, poisonous industrial relations and really bad non-price competitiveness which can't all be blamed on oil or the City. The rest of his book on New Labour (which I seem to remember reading that bit in) is pretty good though.

(btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries).7/09/2007 02:59:00 AM|W|P|Anonymous dearieme|W|P|What classification can identify rubber as a "natural resource" in Thailand?7/09/2007 04:12:00 AM|W|P|Blogger Alex|W|P|BTW, I think I've solved Iraq. We should just blow up the oil fields. Like destroying the Afghans' poppy crop!7/09/2007 06:19:00 AM|W|P|Anonymous dd|W|P|What classification can identify rubber as a "natural resource" in Thailand?

errrm, it's not a manufactured good, it's valuable (much more so in the early part of the last century before synthetic alternatives to latex were discovered) and there's quite a lot of it in Thailand. Expand a little? (It's also not really like opium in that although you can plant more or less of it and it has a limited geographical range, rubber trees take 5-6 years to grow, so if you want guaranteed access to rubber, you need to either trade with or own one of a small number of countries, as the Germans found out).7/15/2007 01:20:00 PM|W|P|Blogger ejh|W|P|btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries

Hard to believe the latter are underrated though, since they're the people best placed to say how great they are (and not at all disinclined to say so).7/20/2007 07:32:00 PM|W|P|Anonymous Maynard Handley|W|P|dd I think you are raising hackles because you are (apparently wilfully) ignoring two possible "channels" of "the resource curse".

The first, more obvious one, is that they provide a focal point for ethnic tensions. If there weren't a concentrated pool of oil at a few limited places in Iraq, it would probably be a whole lot easier to negotiate some sort of divorce settlement between the various warring parties. As it is, Sunni, Shia and Kurds are bound together by a mutual belief that they deserve some of the oil goodies, and so simply splitting apart ala Yugoslavia appears infeasible. Similarly for Sudan. Similarly for Nigeria. Similarly for diamonds in west Africa.
This is not a universal explanation. I don't know that it covers Congo, for example. But I suspect the regressions would show a robust correlation.

The second, IMHO more interesting channel, is the pathological state. The idea here is that "normal" states survive by some sort of fairly broad taxation, and that they are consequently compelled to deliver fairly broad services as quid pro quo, otherwise people get angry and do what they can to turf out those in power. Resource rich states, on the other hand, can survive by leeching off this one industry and channeling the money as they wish. The locals may not be thrilled at their lack of schools and hospitals, but they're not being much taxed so they grin and bear it. Once again one can present counter-examples, but I have listened to talks given by people who claim this is a robust correlation.
This second case is especially interesting in that it picks up cases that many people would not automatically consider as having been "cursed" until they look at the details. South Africa is, IMHO, the obvious example --- basically a flat economy since the late 1960s, with a government able to keep the country fscked up for years because of gold. Non-Africa oil-rich states are a second example (eg Saudi Arabia or Mexico). Many of them are not yet obviously cursed, but the trajectory they are on seems pretty obvious.-->
monetary pathologies -->
bad economic performance

holds, then that's enough for me to say that there's a form of a natural resource curse. Just like if

abundance of natural resources -->
a non-diversified economy subject to terms of trade shocks -->
bad economic performance

or if
abundance of natural resources -->
greedy corrupt governments in conjunction with foreign corporations practicing extractive policies -->
bad economic performance.

At least be more specific damn it.7/05/2007 07:46:00 AM|W|P|Anonymous dd|W|P|I want to see a paper that examines the natural resource curse and then says "ah but when we look at countries with similar degrees of foreign finance the relationship disappears". Point me to it. You're still hand waving you know.

No, you're the one who is hand-waving, and this is exactly what I mean when I suggested to Chris that it's a fantastic example of the way that economists try to talk historical explanations out of existence. The activities of the ITT corporation in Chile, for example, or the Seven Sisters, are fantastically well-known and well-researched. You're trying to pretend that if you could find a country where the % of foreign investment matched Honduras, then it would make the Dole Corporation's activities there just fine. And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous". This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And now you're throwing out the channels you don't like, but which might be true as "not really natural resource course" simply because they make the strawman harder to construct and because they don't jive with your preferred thesis

No, I'm throwing them out because they were rejected in the original Sachs and Warner paper and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people. Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

Like I said, no one thinks that natural resources by themselves have a super natural power to thrust you into poverty. There's gotta be a channel

As I say above, this is like abstract theorising about the possible "channels" which account for the empirical correlation between the coolness and redness of one's sports car and the likelihood of it getting keyed in the pub car park. It's blame-the-victim stuff.7/05/2007 07:52:00 AM|W|P|Anonymous dd|W|P|Just to make this clearer - there really aren't so very many regions of the world that have valuable natural resources that we need to go around creating summary population statistics and carrying out linear regressions (or any other kind of regressions). It's actually possible to pick up a stack of history books and ask "why is Africa in such a bad way?", "why is Latin American in such a bad way?" etc. And the common factor in these cases is colonialism. In non-resource-rich countries, the level of development today correlates strongly with the number of slaves extracted during the transatlantic trade - not a different phenomenon.7/05/2007 08:16:00 AM|W|P|Blogger Alex|W|P|Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

As most people live in the non-resources sector, this is surely not an argument *against* its importance.7/05/2007 08:43:00 AM|W|P|Anonymous dd|W|P|Well not really - as I say, was it really bad news for the UK that we struck North Sea Oil? Most people in California don't work in technology, but Silicon Valley is good for California, even though its growth has probably been a drag on the non-tech economy of California. "Last of the Summer Wine" was probably bad for the non-tourist sector in Holmfirth.

In order to get aggregate negative effects from Dutch Disease type events, you have to get seriously into the kind of long-term, learning-by-doing prodcutivity arguments that don't really make much sense in the context of a nonindustrialised economy. In order to get a result that Dutch disease could make things worse for the majority of people, you have to assume some quite weird things about ownership and employment, and zero government reaction at all - in otherwise, you have to assume something like colonialism, in which case the problem isn't the exchange rate, it's the expropriation.7/05/2007 09:12:00 AM|W|P|Blogger ejh|W|P|Anybody here read The Pearl by John Steinbeck?7/05/2007 01:45:00 PM|W|P|Blogger YouNotSneaky!|W|P|No, I'm throwing them out because they were rejected in the original Sachs and Warner paper

Are you reading the same Sachs and Warner as I am or are you just making shit up as you go along?

http://www.nber.org/papers/w5398.v5.pdf

"In the seventeenth century, resource poor Netherlands eclipsed Spain, despite the overflow of gold and silver from the Spanish colonies in the New World"

From the introduction, not really discussed in the rest of the paper as it is a contemporary not a historical study.

Also on this whole bad institutions thing:

"This negative relationship holds true even after controlling for variables found to be important for economic growth, such as ... government efficiency"

(from the freakin' abstract)

"There is only weak evidence that primary resource intensity is associated with poorer bureaucratic quality"

So no, it's not about corrupt governments but something else. Maybe;

"Our main conclusion is that the estimated direct effect of SXP (natural resource abundance – the one most likely due to DD) on growth is about twice as large as all the indirect effects combined. Moreover, of these indirect effects, our estimates indicate that the indirect effect operating through openness is by far the largest. These results lend modest support to the view that the dynamic Dutch disease effects we emphasize in the growth model … are qualitatively important."

"qualitatively important" does not sound like "rejected".

and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people

Name it so I can know exactly what it is you're referring to rather than trying to argue against or for some straw man you constructed.


Also, on the case of Malaysia:
"We postulate and find supporting evidence for a U-shaped relationship between openness and resource intensity. Our reasoning is as follows. Resource abundance squeezes the manufacturing sector as in the Dutch Disease. In almost all countries, the squeeze of manufactures provokes some protectionist response that aims to promote industrialization despite the Dutch Disease effects… Two interesting examples on the positive part of the U are Malaysia and Saudi Arabia. These countries are extremely resource rich and also have a long history of open trade."

And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous".

Oh, bullshit. The Acemoglu and the Engerman and Sokoloff I mentioned earlier do exactly that - look at the history. And again, what specific papers in the NRC literature are you objecting too? What version, what channel? Or is this just the standard cute "I take on a popular mainstream economic idea in order to look like a bad ass" posture?


This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And this is exactly the sort of completely irrelevant and incorrect empty assertion - gotta get the kick in at the neoclassicals you know - that sets the tone for this discussion.

Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?7/05/2007 01:50:00 PM|W|P|Blogger YouNotSneaky!|W|P|Hell, SW mentions Prebisch in a positive light - since that famous apologist for colonialism and vigorous supporter of foreign corporations was in some ways an originator of (a form of) the NRC idea.7/05/2007 11:32:00 PM|W|P|Anonymous dd|W|P|Radek, the S&W paper is about "resource curse". Resource curse means that resource-rich countries have a growth penalty relative to resource-poor countries. Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper (don't have JSTOR at my desk but it's in there).

Remember that there is a theoretical NRC literature too, which is if anything bigger than the empirical literature (of which I take Sala-i-Martin as representative of the post Sachs work). As Captain C says above, it's treated as a "stylised fact" these days, which people try to explain or come up with patronising solutions for (nearly all of which involve removing valuable things from the governments of the countries that own them). Have a quick google search and see how many pages you have to scroll through to find a single paper that acknolwedges that foreigners might have something to do with the problem.7/06/2007 08:57:00 AM|W|P|Blogger YouNotSneaky!|W|P|Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper

No, as I indicate above SW think the NRC curse takes place through "dynamic Dutch-Disease" - Dutch Disease plus learning by doing - rather than through corruption etc.

SiM&Sub on the other hand do think it's about corruption; "Our key results are in sharp contrast to the commonly-held view about the impact of natural resources (especially Sachs and Warner, 1995)"(my emphasis)

There's more I could write here on the effect of colonialism (which would obviously effect level but not necessarily the growth rate after independence) vs. natural resource curse, but I'll wait till you write something full up.7/06/2007 03:02:00 PM|W|P|Anonymous nick s|W|P|Ferguson's star power apparently leads him to believe that he can write way outside his speciality (German economic history, mate) and not end up baring his arse. It's one thing to market yourself as Dr Hoorah McEmpire from the side of the white folks, but it's a bit rich to reinvent yourself as a neo-post-colonialist.

Anyway, I'm sure he's got lots of eager Harvard graduate students doing the primary research for his next book, which will be a curiously unironic echo of Nostromo.7/06/2007 03:08:00 PM|W|P|Anonymous nick s|W|P|Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?

Well, the division between the one and the other is a fluid and interesting one.7/07/2007 01:30:00 AM|W|P|Blogger Martin Wisse|W|P|Dutch disease? I thought that our reluctance to have Pershing tactical nukes and cruise missiles stationed in our country was the Dutch disease?

The economic trouble the Netherlands went through in the sixties, and later in the late seventies/early eighties had nothing to do wit suddenly discovering natural gas reserves and everything to do with having several high employement industries (textiles, coal mines first, later ship building and such) go kaput because they couldn't compete on the world markets anymore.

Having the income from natural gas helped there, as it meant the government was able to spent more helping alleviate the effects of the collapse of these industries.7/08/2007 09:38:00 AM|W|P|Blogger Alex|W|P|One of the reasons for them being unable to compete was that the gas caused the exchange rate to climb, hence making their products very expensive.

That's yer Dutch disease.7/08/2007 01:21:00 PM|W|P|Anonymous Phil|W|P|But was a high exchange rate inevitable? Robin Ramsay suggested a while ago that the informal Treasury dictum "either North Sea oil or manufacturing industry, but not both" should have read "North Sea oil, manufacturing industry and the City - pick two".7/09/2007 01:29:00 AM|W|P|Anonymous dd|W|P|Martin is correct that it's quite a controversial question in the literature (in as much as something from thirty years ago can be controversial) whether the Netherlands in the 1970s is actually a good example of the phenomenon which is called "Dutch Disease" these days - the original description comes from the Economist magazine rather than anything rigorous. And the Netherlands economy is in pretty darn good shape today.

To be honest, I would have picked "North Sea Oil and the City, thanks" off Phil and Robin Ramsay's menu (albeit I am hardly unbiased). As I mentioned to Alex, it is not as if UK manufacturing industry was the envy of the world in 1978, there were serious problems of under-training, under-investment, poisonous industrial relations and really bad non-price competitiveness which can't all be blamed on oil or the City. The rest of his book on New Labour (which I seem to remember reading that bit in) is pretty good though.

(btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries).7/09/2007 02:59:00 AM|W|P|Anonymous dearieme|W|P|What classification can identify rubber as a "natural resource" in Thailand?7/09/2007 04:12:00 AM|W|P|Blogger Alex|W|P|BTW, I think I've solved Iraq. We should just blow up the oil fields. Like destroying the Afghans' poppy crop!7/09/2007 06:19:00 AM|W|P|Anonymous dd|W|P|What classification can identify rubber as a "natural resource" in Thailand?

errrm, it's not a manufactured good, it's valuable (much more so in the early part of the last century before synthetic alternatives to latex were discovered) and there's quite a lot of it in Thailand. Expand a little? (It's also not really like opium in that although you can plant more or less of it and it has a limited geographical range, rubber trees take 5-6 years to grow, so if you want guaranteed access to rubber, you need to either trade with or own one of a small number of countries, as the Germans found out).7/15/2007 01:20:00 PM|W|P|Blogger ejh|W|P|btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries

Hard to believe the latter are underrated though, since they're the people best placed to say how great they are (and not at all disinclined to say so).7/20/2007 07:32:00 PM|W|P|Anonymous Maynard Handley|W|P|dd I think you are raising hackles because you are (apparently wilfully) ignoring two possible "channels" of "the resource curse".

The first, more obvious one, is that they provide a focal point for ethnic tensions. If there weren't a concentrated pool of oil at a few limited places in Iraq, it would probably be a whole lot easier to negotiate some sort of divorce settlement between the various warring parties. As it is, Sunni, Shia and Kurds are bound together by a mutual belief that they deserve some of the oil goodies, and so simply splitting apart ala Yugoslavia appears infeasible. Similarly for Sudan. Similarly for Nigeria. Similarly for diamonds in west Africa.
This is not a universal explanation. I don't know that it covers Congo, for example. But I suspect the regressions would show a robust correlation.

The second, IMHO more interesting channel, is the pathological state. The idea here is that "normal" states survive by some sort of fairly broad taxation, and that they are consequently compelled to deliver fairly broad services as quid pro quo, otherwise people get angry and do what they can to turf out those in power. Resource rich states, on the other hand, can survive by leeching off this one industry and channeling the money as they wish. The locals may not be thrilled at their lack of schools and hospitals, but they're not being much taxed so they grin and bear it. Once again one can present counter-examples, but I have listened to talks given by people who claim this is a robust correlation.
This second case is especially interesting in that it picks up cases that many people would not automatically consider as having been "cursed" until they look at the details. South Africa is, IMHO, the obvious example --- basically a flat economy since the late 1960s, with a government able to keep the country fscked up for years because of gold. Non-Africa oil-rich states are a second example (eg Saudi Arabia or Mexico). Many of them are not yet obviously cursed, but the trajectory they are on seems pretty obvious.-->
monetary pathologies -->
bad economic performance

holds, then that's enough for me to say that there's a form of a natural resource curse. Just like if

abundance of natural resources -->
a non-diversified economy subject to terms of trade shocks -->
bad economic performance

or if
abundance of natural resources -->
greedy corrupt governments in conjunction with foreign corporations practicing extractive policies -->
bad economic performance.

At least be more specific damn it.7/05/2007 07:46:00 AM|W|P|Anonymous dd|W|P|I want to see a paper that examines the natural resource curse and then says "ah but when we look at countries with similar degrees of foreign finance the relationship disappears". Point me to it. You're still hand waving you know.

No, you're the one who is hand-waving, and this is exactly what I mean when I suggested to Chris that it's a fantastic example of the way that economists try to talk historical explanations out of existence. The activities of the ITT corporation in Chile, for example, or the Seven Sisters, are fantastically well-known and well-researched. You're trying to pretend that if you could find a country where the % of foreign investment matched Honduras, then it would make the Dole Corporation's activities there just fine. And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous". This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And now you're throwing out the channels you don't like, but which might be true as "not really natural resource course" simply because they make the strawman harder to construct and because they don't jive with your preferred thesis

No, I'm throwing them out because they were rejected in the original Sachs and Warner paper and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people. Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

Like I said, no one thinks that natural resources by themselves have a super natural power to thrust you into poverty. There's gotta be a channel

As I say above, this is like abstract theorising about the possible "channels" which account for the empirical correlation between the coolness and redness of one's sports car and the likelihood of it getting keyed in the pub car park. It's blame-the-victim stuff.7/05/2007 07:52:00 AM|W|P|Anonymous dd|W|P|Just to make this clearer - there really aren't so very many regions of the world that have valuable natural resources that we need to go around creating summary population statistics and carrying out linear regressions (or any other kind of regressions). It's actually possible to pick up a stack of history books and ask "why is Africa in such a bad way?", "why is Latin American in such a bad way?" etc. And the common factor in these cases is colonialism. In non-resource-rich countries, the level of development today correlates strongly with the number of slaves extracted during the transatlantic trade - not a different phenomenon.7/05/2007 08:16:00 AM|W|P|Blogger Alex|W|P|Also, "Dutch disease" can only explain lower growth in the non-resources sector, not lower growth overall which is what "resource curse" means surely to God.

As most people live in the non-resources sector, this is surely not an argument *against* its importance.7/05/2007 08:43:00 AM|W|P|Anonymous dd|W|P|Well not really - as I say, was it really bad news for the UK that we struck North Sea Oil? Most people in California don't work in technology, but Silicon Valley is good for California, even though its growth has probably been a drag on the non-tech economy of California. "Last of the Summer Wine" was probably bad for the non-tourist sector in Holmfirth.

In order to get aggregate negative effects from Dutch Disease type events, you have to get seriously into the kind of long-term, learning-by-doing prodcutivity arguments that don't really make much sense in the context of a nonindustrialised economy. In order to get a result that Dutch disease could make things worse for the majority of people, you have to assume some quite weird things about ownership and employment, and zero government reaction at all - in otherwise, you have to assume something like colonialism, in which case the problem isn't the exchange rate, it's the expropriation.7/05/2007 09:12:00 AM|W|P|Blogger ejh|W|P|Anybody here read The Pearl by John Steinbeck?7/05/2007 01:45:00 PM|W|P|Blogger YouNotSneaky!|W|P|No, I'm throwing them out because they were rejected in the original Sachs and Warner paper

Are you reading the same Sachs and Warner as I am or are you just making shit up as you go along?

http://www.nber.org/papers/w5398.v5.pdf

"In the seventeenth century, resource poor Netherlands eclipsed Spain, despite the overflow of gold and silver from the Spanish colonies in the New World"

From the introduction, not really discussed in the rest of the paper as it is a contemporary not a historical study.

Also on this whole bad institutions thing:

"This negative relationship holds true even after controlling for variables found to be important for economic growth, such as ... government efficiency"

(from the freakin' abstract)

"There is only weak evidence that primary resource intensity is associated with poorer bureaucratic quality"

So no, it's not about corrupt governments but something else. Maybe;

"Our main conclusion is that the estimated direct effect of SXP (natural resource abundance – the one most likely due to DD) on growth is about twice as large as all the indirect effects combined. Moreover, of these indirect effects, our estimates indicate that the indirect effect operating through openness is by far the largest. These results lend modest support to the view that the dynamic Dutch disease effects we emphasize in the growth model … are qualitatively important."

"qualitatively important" does not sound like "rejected".

and more or less all of the subsequent literature has concentrated on the particular pathologies of corrupt third world people

Name it so I can know exactly what it is you're referring to rather than trying to argue against or for some straw man you constructed.


Also, on the case of Malaysia:
"We postulate and find supporting evidence for a U-shaped relationship between openness and resource intensity. Our reasoning is as follows. Resource abundance squeezes the manufacturing sector as in the Dutch Disease. In almost all countries, the squeeze of manufactures provokes some protectionist response that aims to promote industrialization despite the Dutch Disease effects… Two interesting examples on the positive part of the U are Malaysia and Saudi Arabia. These countries are extremely resource rich and also have a long history of open trade."

And you're trying to suggest that anyone who actually looks at the history is "hand-waving", while the festival of hand-waving which is the NRC literature is "rigorous".

Oh, bullshit. The Acemoglu and the Engerman and Sokoloff I mentioned earlier do exactly that - look at the history. And again, what specific papers in the NRC literature are you objecting too? What version, what channel? Or is this just the standard cute "I take on a popular mainstream economic idea in order to look like a bad ass" posture?


This is exactly the sort of unscrupulous debating tactic that I thought neoclassical economists didn't use.

And this is exactly the sort of completely irrelevant and incorrect empty assertion - gotta get the kick in at the neoclassicals you know - that sets the tone for this discussion.

Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?7/05/2007 01:50:00 PM|W|P|Blogger YouNotSneaky!|W|P|Hell, SW mentions Prebisch in a positive light - since that famous apologist for colonialism and vigorous supporter of foreign corporations was in some ways an originator of (a form of) the NRC idea.7/05/2007 11:32:00 PM|W|P|Anonymous dd|W|P|Radek, the S&W paper is about "resource curse". Resource curse means that resource-rich countries have a growth penalty relative to resource-poor countries. Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper (don't have JSTOR at my desk but it's in there).

Remember that there is a theoretical NRC literature too, which is if anything bigger than the empirical literature (of which I take Sala-i-Martin as representative of the post Sachs work). As Captain C says above, it's treated as a "stylised fact" these days, which people try to explain or come up with patronising solutions for (nearly all of which involve removing valuable things from the governments of the countries that own them). Have a quick google search and see how many pages you have to scroll through to find a single paper that acknolwedges that foreigners might have something to do with the problem.7/06/2007 08:57:00 AM|W|P|Blogger YouNotSneaky!|W|P|Dutch disease can't explain an overall growth penalty, only a penalty in non-resource growth. That's in the Sachs and Warner paper

No, as I indicate above SW think the NRC curse takes place through "dynamic Dutch-Disease" - Dutch Disease plus learning by doing - rather than through corruption etc.

SiM&Sub on the other hand do think it's about corruption; "Our key results are in sharp contrast to the commonly-held view about the impact of natural resources (especially Sachs and Warner, 1995)"(my emphasis)

There's more I could write here on the effect of colonialism (which would obviously effect level but not necessarily the growth rate after independence) vs. natural resource curse, but I'll wait till you write something full up.7/06/2007 03:02:00 PM|W|P|Anonymous nick s|W|P|Ferguson's star power apparently leads him to believe that he can write way outside his speciality (German economic history, mate) and not end up baring his arse. It's one thing to market yourself as Dr Hoorah McEmpire from the side of the white folks, but it's a bit rich to reinvent yourself as a neo-post-colonialist.

Anyway, I'm sure he's got lots of eager Harvard graduate students doing the primary research for his next book, which will be a curiously unironic echo of Nostromo.7/06/2007 03:08:00 PM|W|P|Anonymous nick s|W|P|Also, you see to've switched from "foreign corporations" to "colonialism" here. Which is? Can you be more specific?

Well, the division between the one and the other is a fluid and interesting one.7/07/2007 01:30:00 AM|W|P|Blogger Martin Wisse|W|P|Dutch disease? I thought that our reluctance to have Pershing tactical nukes and cruise missiles stationed in our country was the Dutch disease?

The economic trouble the Netherlands went through in the sixties, and later in the late seventies/early eighties had nothing to do wit suddenly discovering natural gas reserves and everything to do with having several high employement industries (textiles, coal mines first, later ship building and such) go kaput because they couldn't compete on the world markets anymore.

Having the income from natural gas helped there, as it meant the government was able to spent more helping alleviate the effects of the collapse of these industries.7/08/2007 09:38:00 AM|W|P|Blogger Alex|W|P|One of the reasons for them being unable to compete was that the gas caused the exchange rate to climb, hence making their products very expensive.

That's yer Dutch disease.7/08/2007 01:21:00 PM|W|P|Anonymous Phil|W|P|But was a high exchange rate inevitable? Robin Ramsay suggested a while ago that the informal Treasury dictum "either North Sea oil or manufacturing industry, but not both" should have read "North Sea oil, manufacturing industry and the City - pick two".7/09/2007 01:29:00 AM|W|P|Anonymous dd|W|P|Martin is correct that it's quite a controversial question in the literature (in as much as something from thirty years ago can be controversial) whether the Netherlands in the 1970s is actually a good example of the phenomenon which is called "Dutch Disease" these days - the original description comes from the Economist magazine rather than anything rigorous. And the Netherlands economy is in pretty darn good shape today.

To be honest, I would have picked "North Sea Oil and the City, thanks" off Phil and Robin Ramsay's menu (albeit I am hardly unbiased). As I mentioned to Alex, it is not as if UK manufacturing industry was the envy of the world in 1978, there were serious problems of under-training, under-investment, poisonous industrial relations and really bad non-price competitiveness which can't all be blamed on oil or the City. The rest of his book on New Labour (which I seem to remember reading that bit in) is pretty good though.

(btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries).7/09/2007 02:59:00 AM|W|P|Anonymous dearieme|W|P|What classification can identify rubber as a "natural resource" in Thailand?7/09/2007 04:12:00 AM|W|P|Blogger Alex|W|P|BTW, I think I've solved Iraq. We should just blow up the oil fields. Like destroying the Afghans' poppy crop!7/09/2007 06:19:00 AM|W|P|Anonymous dd|W|P|What classification can identify rubber as a "natural resource" in Thailand?

errrm, it's not a manufactured good, it's valuable (much more so in the early part of the last century before synthetic alternatives to latex were discovered) and there's quite a lot of it in Thailand. Expand a little? (It's also not really like opium in that although you can plant more or less of it and it has a limited geographical range, rubber trees take 5-6 years to grow, so if you want guaranteed access to rubber, you need to either trade with or own one of a small number of countries, as the Germans found out).7/15/2007 01:20:00 PM|W|P|Blogger ejh|W|P|btw, the importance of financial services is often rather inflated by City boosters. The UK's real service sector success story is the media and creative industries

Hard to believe the latter are underrated though, since they're the people best placed to say how great they are (and not at all disinclined to say so).7/20/2007 07:32:00 PM|W|P|Anonymous Maynard Handley|W|P|dd I think you are raising hackles because you are (apparently wilfully) ignoring two possible "channels" of "the resource curse".

The first, more obvious one, is that they provide a focal point for ethnic tensions. If there weren't a concentrated pool of oil at a few limited places in Iraq, it would probably be a whole lot easier to negotiate some sort of divorce settlement between the various warring parties. As it is, Sunni, Shia and Kurds are bound together by a mutual belief that they deserve some of the oil goodies, and so simply splitting apart ala Yugoslavia appears infeasible. Similarly for Sudan. Similarly for Nigeria. Similarly for diamonds in west Africa.
This is not a universal explanation. I don't know that it covers Congo, for example. But I suspect the regressions would show a robust correlation.

The second, IMHO more interesting channel, is the pathological state. The idea here is that "normal" states survive by some sort of fairly broad taxation, and that they are consequently compelled to deliver fairly broad services as quid pro quo, otherwise people get angry and do what they can to turf out those in power. Resource rich states, on the other hand, can survive by leeching off this one industry and channeling the money as they wish. The locals may not be thrilled at their lack of schools and hospitals, but they're not being much taxed so they grin and bear it. Once again one can present counter-examples, but I have listened to talks given by people who claim this is a robust correlation.
This second case is especially interesting in that it picks up cases that many people would not automatically consider as having been "cursed" until they look at the details. South Africa is, IMHO, the obvious example --- basically a flat economy since the late 1960s, with a government able to keep the country fscked up for years because of gold. Non-Africa oil-rich states are a second example (eg Saudi Arabia or Mexico). Many of them are not yet obviously cursed, but the trajectory they are on seems pretty obvious.-->