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?

Source: Energy Information Administration

Source: Nation Master

Saudi Arabia UAE Iran Kuwait Norway Venezuela Nigeria Algeria Iraq Kazakhstan Canada Qatar Sources: Energy Information Administration & Nation Master

Source: Energy Information Administration

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

Total Tax Revenues as % of GDP % of Tax Revenues from Oil Sources: OECD & Economist UAE Kuwait Norway Iran Venezuela Nigeria Algeria Canada Saudi Arabia Russia Libya Angola Total Tax Revenues as % of GDP vs % of Tax Revenues from Oil (2008)

Total Tax Revenues as % of GDP Democracy Index Score Sources: OECD & Economist UAE Kuwait Norway Qatar Iran Venezuela Nigeria Algeria Kazakhstan Canada Saudi Arabia Russia Libya Angola Taxes vs Democracy (2008)

Democracy Index Score % of Tax Revenues from Oil Sources: OECD & Economist UAE Kuwait Norway Iran Venezuela Nigeria Algeria Canada Saudi Arabia Russia Libya Angola Democracy vs % of Tax Revenues from Oil (2008) Iraq

% of GDP from oil vs GDP Growth Rate (2008) UAE Kuwait Norway Qatar Iran Venezuela Nigeria Algeria Kazakhstan Canada Saudi Arabia Russia Libya Angola Iraq % of GDP from Oil GDP Growth Rate Sources: CIA World Fact Book, EIA, and World Bank

% of GDP from oil vs Voice and Accountability (2008) UAE Kuwait Norway Qatar Iran Venezuela Nigeria AlgeriaKazakhstan Canada Saudi Arabia Russia Libya Angola Iraq Sources: World Bank and EIA

% of GDP from oil vs Political Stability (2008) 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 Government Effectiveness(2008) 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 Regulatory Quality (2008) 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) 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 Control of Corruption (2008) 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 Average Governance Indicator (2008) UAE Kuwait Norway Qatar Iran Venezuela Nigeria Algeria Kazakhstan Canada Saudi Arabia Russia Libya 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