Monday, 3 August 2009

Incentives matter: natural resources file

Many poor countries are suffer from corruption, low human capital and an economy mostly based on natural resources. Iván Aldave and Cecilia García-Peñalosa put forward the argument that the "blessing" of natural resources gives the wrong incentives: why get educated when the soil is rich without effort? This results in low human capital for natural resource rich countries. This is something we already knew, see for example how rich, countries without natural resources can become, eg Japan. So we have a link between natural resources and human capital.

But the paper goes on to argue for a link from natural resources to corruption. This is more intriguing. Natural resources are generally state owned, thus more prone to rent seeking than, say, manufacturing. The more natural resources, the more you want to invest in political capital to the detriment of other forms of capital. Again, the wrong incentives.

(HT: Economic Logic)

2 comments:

Alix said...

GO TO-
free_ben_and_olivia@live.com
TYPE IN PASSWORD-
Freebenandolivia
DO IT SOON AND SEE WHAT THE GOVERNMENT ARE HIDING BEHIND OUR BACKS.
Government have stalled my emails. Check tonight before the email address closes.
Download information- Do not publish any information.
But beware of the MEAnz cover-up.
Read draft folders- open all folders- take information.

Sorry about spelling mistakes on email account- rushed job.

PC said...

George Reisman calls this the "Argentine delusion," since "it is especially prominent in that country." It is, he says, " a peculiar consequence of the collectivist view of natural resources . . . [that] manifests itself in such statements as: "We are a rich country but a poor people." And: "We have tremendous wealth. None of our problems are real or fundamental. They're just psychological."

You can see his discussion of the delusion at pages 325-326 of his book 'Capitalism,' online here.