Energy: Its Relationship to Dutch Disease, Resource Curse,

Governance and Democracy

18 Nov 09

Background• Resource rich countries develop slower than resource poor

countries– Dutch Disease

• Resource rich countries tend to be more authoritarian, violent and corrupt– Resource Curse

• Is there a link between resource abundance and lack of democracy?

Exports: Thousands of Barrels / Day

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Saudi A

rabia

Russia

UAEIra

n

Kuwait

Norway

Angola

Venezuela

Nigeria

Algeria Iraq

Libya

Kazakhsta

n

Canad

aQatar

Source: Energy Information Administration

Exports: Barrels per Day / K population

0100200300400500600700800900

1000

Saudi A

rabia

Russia

UAEIra

n

Kuwait

Norway

Angola

Venezuela

Nigeria

Algeria Iraq

Libya

Kazakhsta

n

Canad

aQatar

Source: Nation Master

0 100 200 300 400 500 600 700 800 900 10000

1000

2000

3000

4000

5000

6000

7000

8000

9000Oil Exports (Per Day vs Per Capita)

Oil Exports Per Capita (Barrels per day / Thousand People)

Oil

Expo

rts

Per D

ay (T

hous

ands

of B

arre

ls)

Angola

Libya

Russia

Saudi Arabia

UAEIran Kuwait

Norway

Venezuela

Nigeria

Algeria

Iraq

KazakhstanCanada

Qatar

Sources: Energy Information Administration & Nation Master

Source: Energy Information Administration

Saudi A

rabia

Russia

UAEIra

nKuwait

Norway

Angola

Venezuela

Nigeria

Algeria

Libya

Kazakh

stan

Canad

aQata

r0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

1400.0

1600.0

1800.0

GDP ($B)Oil Revenues ($B)

33%61.6% 39.7% 60% 30%14.5% 54.5% 21.3% 71.4% 16.4% 81.5% 18% 2.7% 46%

Sources: World Bank & Energy Information Administration

Does Oil Hinder Democracy?

• Rentier Effect– Taxation Effect– Spending Effect– Group Formation Effect

• Repression Effect• Modernization Effect

– Dutch Disease and Resource Curse = Lower Growth

Dutch Disease

• Symptoms:⁻ Natural Resource Boom = Deindustrialization

Resource Movement Effect Spending Effect

⁻ Rise in exchange rate = decreased competitiveness Protectionist Policy

• Remedies⁻ Sovereign Wealth Funds⁻ Fiscal Policy

Resource Curse• Symptoms

⁻ Lower Growth Rate⁻ Increased Conflict ⁻ Poor political relationship between Rulers and Citizens⁻ Volatility of Revenues⁻ Corruption⁻ Lack of Diversification

• Remedies⁻ Direct Distribution of Oil Revenues which are then taxed

Pros and Cons

• Plus: – Generous social services– Strong growth during boom times

• Minus:– Government Fiscal Powers dampen pressure for democracy– Conflict and stronger security forces to ward off democratic

pressures– Lack of occupational specialization and economic diversity

0.0%10.0%

20.0%30.0%

40.0%50.0%

60.0%70.0%

80.0%90.0%

100.0%0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

R² = 0.721464404184833

Tota

l Tax

Rev

enue

s as %

of G

DP

% of Tax Revenues from OilSources: OECD & Economist

UAEKuwait

Norway

Iran

Venezuela

NigeriaAlgeria

Canada

Saudi Arabia

Russia

LibyaAngola

Total Tax Revenues as % of GDP vs % of Tax Revenues from Oil

(2008)

1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.000.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

R² = 0.67648379682112

Tota

l Tax

Rev

enue

s as %

of G

DP

Democracy Index ScoreSources: OECD & Economist

UAEKuwait

Norway

Qatar

Iran

Venezuela

NigeriaAlgeria

Kazakhstan

Canada

Saudi Arabia

Russia

LibyaAngola

Taxes vs Democracy(2008)

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%100.0%0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

R² = 0.699927683539116

Dem

ocra

cy In

dex

Scor

e

% of Tax Revenues from OilSources: OECD & Economist

UAE

Kuwait

Norway

Iran

Venezuela

NigeriaAlgeria

Canada

Saudi Arabia

Russia

Libya

Angola

Democracy vs % of Tax Revenues from Oil

(2008)

Iraq

% of GDP from oil vs GDP Growth Rate(2008)

0 10 20 30 40 50 60 70 80 900.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

f(x) = 0.00114439110521346 x + 0.0128741814642067R² = 0.608577878889087

UAE

Kuwait

Norway

Qatar

Iran

VenezuelaNigeria

AlgeriaKazakhstan

Canada

Saudi ArabiaRussia

Libya

Angola

Iraq

% of GDP from Oil

GDP

Grow

th R

ate

Sources: CIA World Fact Book , EIA, and World Bank

% of GDP from oil vs Voice and Accountability(2008)

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

0 10 20 30 40 50 60 70 80 90

UAE

Kuwait

Norway

Qatar

Iran

Venezuela Nigeria

AlgeriaKazakhstan

Canada

Saudi Arabia

Russia

Libya

AngolaIraq

Sources: World Bank and EIA

% of GDP from oil vs Political Stability(2008)

-3.00

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

0 10 20 30 40 50 60 70 80 90

UAE Kuwait

NorwayQatar

IranVenezuela

Nigeria

Algeria

Kazakhstan

Canada

Saudi Arabia

Russia

Libya

Angola

Iraq

Sources: World Bank and EIA

% of GDP from oil vs Government Effectiveness(2008)

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

0 10 20 30 40 50 60 70 80 90

UAE

Kuwait

Norway

Qatar

IranVenezuela

Nigeria

AlgeriaKazakhstan

Canada

Saudi Arabia

Russia

Libya

AngolaIraq

Sources: World Bank and EIA

% of GDP from oil vs Regulatory Quality(2008)

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

0 10 20 30 40 50 60 70 80 90

UAE

Kuwait

Norway

Qatar

Iran

Venezuela

Nigeria Algeria

Kazakhstan

Canada

Saudi Arabia

Russia

Libya Angola

Iraq

Sources: World Bank and EIA

% of GDP from oil vs Rule of Law(2008)

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

0 10 20 30 40 50 60 70 80 90

UAEKuwait

Norway

Qatar

Iran

Venezuela

Nigeria

AlgeriaKazakhstan

Canada

Saudi Arabia

Russia Libya

Angola

Iraq

Sources: World Bank and EIA

% of GDP from oil vs Control of Corruption(2008)

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

0 10 20 30 40 50 60 70 80 90

UAE

Kuwait

Norway

Qatar

Iran

Venezuela

Nigeria

Algeria

Kazakhstan

Canada

Saudi Arabia

RussiaLibya

Angola

Iraq

Sources: World Bank and EIA

% of GDP from oil vs Average Governance Indicator(2008)

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

1.50

2.00

0 10 20 30 40 50 60 70 80 90

UAE

Kuwait

Norway

Qatar

IranVenezuela Nigeria

AlgeriaKazakhstan

Canada

Saudi Arabia

RussiaLibya Angola

Iraq

Sources: World Bank and EIA

Works Studied

• Does Oil Hinder Democracy?– by Michael L. Ross

• Oil, Corruption and the Resource Curse– by Nicholas Shaxson

• Natural Resource Abundance and Economic Growth– by Jeffrey D. Sachs and Andrew M. Warner