Wednesday, July 31, 2013

Papua New Guinea looks to entrepreneurs to escape ‘resource curse

Financial Times: In Port Moresby’s heavily fortified Royal Papua Yacht Club, all the talk is of the coming slowdown as the construction of a $19bn ExxonMobil liquefied natural gas project nears completion.
The luxury waterfront apartments that flank the recently extended marina are mostly occupied by expatriates working on the development, which has propelled annual gross domestic product growth to 8 per cent over the past five years but also driven property and food prices to painfully high levels...

Tuesday, July 30, 2013

Replicating Sachs and Warner's Working Papers on the Resource Curse

Journal of Development Studies: This article reports on my attempt to replicate Sachs and Warner's 1995 and 1997 resource curse working papers. The 1995 paper is not replicable for lack of a data archive. Pure replication of the 1997 paper is achieved. Statistical replication determines that the proposed institutional causes of the resource curse are not robust to country sample. Scientific replication shows that findings of a resource curse are not sensitive to different measures of resource intensiveness, though they are sensitive to estimation technique. Typographical errors in the published paper reveal the value of researchers making both their data and code available.

Monday, July 29, 2013

A Blessing in Disguise: The Implications of High Global Oil Prices for the North American Market

Bank of Canada WP: We examine the implications of increased unconventional crude oil production in North America. This production increase has been made possible by the existence of alternative oil-recovery technologies and persistently elevated oil prices that make these technologies commercially viable. We first discuss the factors that have enabled the United States to expand production so rapidly and the glut of oil inventory that has accumulated in the Midwest as result of logistical challenges and export restrictions. Next, we assess the extent to which the increase in U.S. domestic production will affect global supply conditions and whether the U.S. experience can be repeated in other countries with rich unconventional oil sources. The evidence suggests that even in the best-case scenario, the increase in U.S. production will not make a large contribution to global production, so its effect on the price of oil is expected to be limited. Furthermore, the United States enjoys unique infrastructural and technological advantages that make it unlikely that similarly rapid increases in unconventional production can be achieved elsewhere.

Saturday, July 27, 2013

Energy use and growth

The Economist:  ... US GDP growth per capita between 1986 and 2011 averaged 2.5%; energy use per capita fell 0.17% a year over the same period. The same effect appears elsewhere. The peak of energy use per person in Britain occurred in 1973; in Germany, it was 1979. Some of this, of course, is because the oil shock of the 1970s made us shift to more efficient cars and heating systems; more generally, the economy is dematerialising. You are reading this article online; these blogs are an additional service to the reader that were not available 20 years ago. Individual journalists are more productive in the sense that, as well as articles in the printed magazine, they blog, tweet and do podcasts - all of which require very little use of physical resources. As Mr Harford points out, New York is a pretty advanced city - but it uses much less energy per person than the US as a a whole, and indeed uses less than the average of any other state...

Friday, July 26, 2013

Saudi doesn’t want to talk about the shale boom

Your Middle East:  At the May 31stmeeting of the Organization of Petroleum Exporting Countries (OPEC), the Saudi oil minister, Ali al-Naimi was asked one too many times about the shale revolution:

“Why are you all excited all of a sudden on shale? You know why, because you like to chit chat…you are an agent of disturbance,” he said, pointing a finger at his questioner. “Leave us alone and leave all these issues. We had enough of shale oil and talks of shale. Please talk about anything else,” he said, switching from English to Arabic.

Thursday, July 25, 2013

Growth in commodity-exporting emerging markets may be over

Roubini at Project Syndicate: ...the commodity super-cycle that helped Brazil, Russia, South Africa, and many other commodity-exporting emerging markets may be over. Indeed, a boom would be difficult to sustain, given China’s slowdown, higher investment in energy-saving technologies, less emphasis on capital- and resource-oriented growth models around the world, and the delayed increase in supply that high prices induced.

Wednesday, July 24, 2013

Guinea's anti-corruption activists raise doubts over mining crackdown

The Guardian: ... government figures convened investors at a hotel in London last month to promote the merits of doing business in the west African country. At the heart of efforts to attract investors are reforms to the mining code, and the creation of a committee to re-evaluate all 18 mining contracts and make recommendations for some to be renegotiated. "We are making an in-depth assessment of the contracts. If there are some imbalances, our mandate is to negotiate with the mining companies in order to regulate them," says Nava TourĂ©, president of the committee. But the review has come under criticism from all sides. Mining companies – many of which are watching the criminal investigation of BSG Resources (BSGR), which is accused of using bribery to obtain concessions – are nervous about the prospect of scrutiny and dubious about being asked to renegotiate legally binding contracts. Anti-corruption activists say the process lacks teeth and depends on the goodwill of companies to renegotiate the terms of mining deals, something the government admits...

Tuesday, July 23, 2013

Global Warming and the Green Paradox

OxCarre WP: Announcing a future carbon tax or a sufficiently fast rising carbon tax encourages fossil fuel owners to extract reserves more aggressively, thus exacerbating global warming. These policies also encourage more fossil fuel to be locked in the crust of the earth which can offset adverse weak Green Paradox effects. A renewables subsidy has similar weak Green Paradox effects. Green welfare drops (strong Green Paradox) if the beneficial effects for the climate of locking up more fossil fuel outweigh the short-run weak Green Paradox effects. Neither the weak nor the strong Green Paradox occurs for the first-best Pigovian carbon tax. Within the context of a green Ramsey growth model the qualitative nature of the different phases of fossil fuel and renewables use depends crucially on the initial stocks of fossil fuel reserves and capital. We examine how climate policies are affected by growth and development, and also when not the renewable but coal is the effective backstop.

Monday, July 22, 2013

Direct Transfers of Resource Revenues in Africa

Center for Global Development: Noting that Africa’s resource-rich countries have not translated their wealth into sustained economic growth and poverty reduction, this paper shows that by transferring a portion of resource-related government revenues uniformly and universally as direct payments to the population, some countries could increase both private consumption and the provision of public goods, and thereby reduce poverty and enhance social welfare. We make the case based on theoretical considerations and explore how these direct dividend payments would look in practice in a group of selected African countries.

Friday, July 19, 2013

Asymmetric oil: Fuel for conflict

VoxEU: Oil has often been linked to interstate wars. This column argues that asymmetries in endowments of natural resources are important determinants of territorial conflict. When one country has oil near its border with an oil-less country, the probability of conflict is between three and four times as large as when neither country has oil. In contrast, when the oil is very far from the border, the probability of conflict is not significantly higher than between countries with no oil.

Thursday, July 18, 2013

The Right Green Industrial Policies

Rodrik at Project Syndicate: The future of our planet depends on the world economy’s rapid transition to “green growth” – modes of production based on clean technologies that significantly reduce emissions of carbon dioxide and other greenhouse gases. Yet carbon remains badly mispriced, owing to fossil-fuel subsidies and the absence of tax revenues needed to address the global externalities of climate change.
In this context, subsidies that promote the development of green technologies – wind, solar, bio-energy, geothermal, hydrogen, and fuel-cell technologies, among others – are doubly important. First, they nudge pioneers to invest in uncertain, risky ventures, with the resulting research-and-development efforts generating highly valuable social benefits. Second, they counter the effects of carbon mispricing on the direction of technological change...

Wednesday, July 17, 2013

International trade in mining products

Journal of Economic Surveys: The increase in mineral price volatility since 1970 and worries about the impact of rapidly growing mineral exports on the economic growth of developing countries have created recent interest in mineral trade flows and policies. This paper provides a review of current thinking on the economics of international trade in mining products. Despite mining products’ importance in early formulations of trade theory, there have been relatively few studies that have specifically examined mining product trade flows. The limited evidence that exists supports the idea that factor endowment differences explain much mining product trade. There is some apparent South–South and intra-industry trade in mining products, but we find no need to resort to the ‘new trade theory’ to explain this. Given worries of substandard growth and development in mining-based economies, trade policies have been used to try to accelerate the movement towards resource-based manufacturing. In the light of recent evidence that mining product exporters have not suffered in the long-run from mining activity, these policies are likely to have been unwarranted. Nevertheless, there is some evidence that the more closed mining economies have had faster growth than the open mining economies, reflecting correction of a political economy trap that causes open mining economies to under-invest in education.

Tuesday, July 16, 2013

Natural resources and sub-national economic performance

Energy Economics: The differentiation in the impact of resources on economic growth is often explained by the specifics of institutional factors. The aim of this paper is to investigate how sub-national political differences influence the effect of natural resources on economic growth. Using a dataset of Russian regions, this paper demonstrates that sub-national democratization influences the growth effects of resources and considers possible mechanisms for this influence. The paper finds that in Russia, natural resources are only capable of promoting growth in the regions with non-democratic political systems that, at the same time, have an efficient and non-corrupt bureaucracy.

Monday, July 15, 2013

Oil, Gas and Conflict: A Mathematical Model for the Resource Curse

PLOS | ONE: Oil and natural gas are highly valuable natural resources, but many countries with large untapped reserves suffer from poor economic and social-welfare performance. This conundrum is known as the resource curse. The resource curse is a result of poor governance and wealth distribution structures that allow the elite to monopolize resources for self-gain. When rival social groups compete for natural resources, civil unrest soon follows. While conceptually easy to follow, there have been few formal attempts to study this phenomenon. Thus, we develop a mathematical model that captures the basic elements and dynamics of this dilemma. We show that when resources are monopolized by the elite, increased exportation leads to decreased domestic production. This is due to under-provision of the resource-embedded energy and industrial infrastructure. Decreased domestic production then lowers the marginal return on productive activities, and insurgency emerges. The resultant conflict further displaces human, built, and natural capital. It forces the economy into a vicious downward spiral. Our numerical results highlight the importance of governance reform and productivity growth in reducing oil-and-gas-related conflicts, and thus identify potential points of intervention to break the downward spiral.

Saturday, July 13, 2013

How to Manage Natural Resource Wealth for Human Development

 Brookings: ... people in lower-income, resource-rich countries generally fare consistently worse in health and education outcomes than what would be predicted by their level of income. Equatorial Guinea is a case in point, albeit an extreme one. Its GDP per capita is $23,133 (32nd in the world just ahead of South Korea). However, three-quarters of its population lives in poverty (2006) and it ranks 136th on the Human Development Index (2012)...  It is critical that investments in people – and not just in infrastructure – are seen as investments in the future of resource-rich countries...

Friday, July 12, 2013

The Unintended Consequences of Conflict Mineral Policies

Draft: There is widespread perception that trade in “conflict minerals” is causing violence in the Democratic Republic of Congo (DRC). Policy responses include the U.S. Dodd-Frank Act of 2010, which regulates companies whose products contain conflict minerals, and the DRC’s ban on artisanal mining in three of its provinces during 2010-2011. We develop a simple theory to explain why these restrictions on trade in minerals could cause violence to increase in the DRC. The theory is inspired by Mancur Olson’s (2000) stationary bandit metaphor, and suggests that the higher present value of mining sites prior to Dodd Frank caused armed groups to ‘protect’ miners and encourage steady long-run production. By lowering the value of certain mines, the policies caused the armed groups to behave like the more dangerous roving bandit, who has less stake in the future economic productivity of a mining area. We test the implication by merging geo-referenced datasets on armed conflict, militarized mining sites, and mineral prices. We find evidence that the policies increased the incidence of conflict in mining territories shortly after their enactment by about 57 percent.

Thursday, July 11, 2013

Nigeria seeks farming revival to break oil curse

Reuters: ... reforms will need to reverse the inadvertent damage done to the sector by Africa's earliest and biggest oil and gas boom, which crowded out other commodities. In the 1960s, Nigeria was the biggest exporter of peanuts in the world and had 27 percent of the palm oil trade. It remains one of the world's top cocoa growers, but production and bean quality have declined since their heyday in the 1970s. While an elite allied to a series of military dictatorships grew rich on the spoils of the energy sector, millions of mostly subsistence farmers were given little or no help at all. The result: Nigeria is now the world's second largest importer of rice and the biggest buyer of U.S. wheat, while much of its own fertile land lies fallow. A booming population has sent its food import bill rocketing to around $11 billion a year - equivalent to more than a third of the federal budget. Agriculture also offers the best chance to cut unemployment, which feeds an Islamist insurgency in the north and oil theft in the south. Unemployment is 23 percent and youth unemployment double that, national statistics suggest...

Wednesday, July 10, 2013

Portrait of a Russian oligarch

Vice: After the collapse of Communism in Russia, as state assets were divvied up and privatized, a few individuals stepped in to take the reins of this entrepreneurial experiment. Rewarded with massive fortunes and fame, they came to be known as "the oligarchs." To see how the .00001% lives, we met up with infamous Russian oligarch Sergey Veremeenko and spent quality time hog-hunting and helicopter-joyriding at his private estate outside Moscow.

Tuesday, July 9, 2013

Agricultural Shocks and the Growth of the Mexican Drug Sector

New draft by Dube, Gracia-Ponce, and Thom: We examine how income shocks experienced by rural producers affect the drug trade in Mexico. Our analysis exploits exogenous movements in the Mexican maize price stemming from weather conditions in U.S. maize-growing regions, as well as export ‡flows from other major maize producers. We document that these price fl‡uctuations have substantial effects on the income of agricultural workers. Using data on over 2200 municipios spanning 1990-2010, we fi…nd that lower prices differentially increased the cultivation of both marijuana and opium poppies among municipios more climatically suited to growing maize. We also fi…nd impacts on drug seizures, along with killings perpetrated by drug cartels. Our fi…ndings demonstrate that maize price changes contributed to the burgeoning drug trade in Mexico, and point to the violent consequences of an expanding drug sector.

Monday, July 8, 2013

The king of commodities

The Economist:  Mr Rich found his way round any political or moral obstacle. He sold Soviet oil to apartheid South Africa, despite a UN embargo, and between 1979 and 1994 made profits of around $2 billion there. He sent Soviet and Venezuelan oil to Cuba in exchange for sugar, ignoring America’s ban on trade. He sold on the global market surplus Iranian oil that had flowed to Israel down a secret pipeline, and kept the arrangement going seamlessly despite the Iranian revolution of 1979, another embargo, and the American hostage crisis. The Iranians respected their contracts, he explained. They could not sell their oil, so he bought and sold it for them, using shell companies wherever necessary. Keeping well below the radar, as he always did, he was soon the world’s largest independent oil-trader, with a turnover in 1980 of $15 billion...

Read the full obituary here.

Thursday, July 4, 2013

How an Israeli billionaire wrested control of one of Africa’s biggest prizes

The New Yorker: One of the world’s largest known deposits of untapped iron ore is buried inside a great, forested mountain range in the tiny West African republic of Guinea... [the] Simandou [deposit] alone could potentially generate a hundred and forty billion dollars in revenue over the next quarter century, more than doubling Guinea’s gross domestic product...

The Simandou contract was a surprising addition to Steinmetz’s portfolio, because B.S.G.R. had no experience exporting iron ore... Company officials complained to the US Embassy in Conakry; one of them suggested that Steinmetz had no intention of developing the mine himself, and planned instead to flip it—“to obtain the concession and then sell it for a big profit.” Rio Tinto viewed Steinmetz, who was rumored to have extensive contacts in Israeli intelligence, as a suspicious interloper. According to a diplomatic cable released by WikiLeaks, the general manager of Rio Tinto told the U.S. Embassy that he did not feel comfortable discussing the Simandou matter on an “unsecured” cell phone... A year later, he made a deal with the Brazilian mining company Vale—one of Rio Tinto’s chief competitors. Vale agreed to pay two and a half billion dollars in exchange for a fifty-one-per-cent stake in B.S.G.R.’s Simandou operations... “the people of Guinea, who appear to have lost out as a result of the undervaluation of the concession, will not share in that gain.”...

Wednesday, July 3, 2013

The shale-gas revolution unnerves Russian state capitalism

The Economist: A SPECTRE is haunting Russia: the spectre of shale gas. It is seeping into the salons of power, discomfiting Russia’s leaders and their bizniz cronies. Energy companies account for half of the value of the Russian stockmarket, and a single, state-backed firm, Gazprom, produces 10% of the country’s exports. Russian politics are also built on conventional oil and gas: Vladimir Putin is in essence the CEO of Russian Energy Inc. The revolution in unconventional gas production from shale beds, which began in the United States and is now spreading around the world, is shaking Russian state capitalism to its foundations...

Tuesday, July 2, 2013

The resource hope

Project Syndicate: When a country quadruples its tax revenues in a single year, it is time to take notice. That is the scale of the revenue increase that Ghana achieved from 2010 to 2011, owing to receipts from its extractive industries.

Ghana is not alone. Resource-rich developing countries’ rising tax revenues reflect not only higher commodity prices, but also international rules that have improved financial transparency in the oil, gas, and mining industries, reducing opportunities for tax evasion significantly. Such rules also featured high on the agenda of the recent G-8 Summit in Northern Ireland. It is important to appreciate these efforts – and to demand more...

Monday, July 1, 2013

The trade consequences of pricey oil

OxCarre WP: This paper examines the trade and trade-induced welfare effects of high oil prices. Using a gravity model of trade we find that the distance elasticity of trade significantly increases with the oil price. This suggests that high oil prices make trade less global. We estimate that an increase in the oil price from 100$ to 200$ would have the similar effect as imposing a world-wide import tariff between 4% and 9%, depending on the distance between countries. In turn, such higher trade costs would lower welfare by 1.8% in the average non-oil-exporting country.