The curse is broken?

Why hasn’t this been reported more widely?

The correlation between resource dependence and slow growth and conflict, therefore, does not imply causation from the former to the latter. Instead, causality appears to be running from weak institutions and conflict to resource extraction as the default sector, which produces resource dependence as the final outcome. Resource dependence appears as a symptom, rather than a cause of underdevelopment.

The authors argue that previous research on the ‘natural resource curse’ has been unable to correctly identify which way causality runs:

The standard resource variable used by Sachs and Warner, as well as by Collier and Hoeffler, is primary exports divided by a measure of national income. It thus captures the resource dependence of economies, rather than abundance. A negative correlation between this variable and growth could mean that resources lead to slower economic growth, as suggested by the curse proponents. Alternatively, it could mean that poor economic development policies–leading an economy to become dependent on its primary exports–dampen growth. Similarly, although a negative correlation between the resource variable and institutional quality may imply that resources undermine institutions, it might also capture that the resource sector is the “default sector” in the absence of decent institutions when nobody is willing to invest in alternative forms of capital. Finally, a positive correlation between the resource variable and conflict may indeed mean that resources trigger conflict. But it may also be the case that conflict makes countries dependent on resource extraction–the default activity that still takes place after other economic sectors (more mobile or, perhaps, better linked to the rest of the economy) have come to a stop. If so, resources are not a curse to development, but rather a safety net to support people and economies even under adverse circumstances.

They argue that economic dependence on natural resources is endogenous in exactly this way and use data on resource endowment — rather than resource exports — as an explanatory variable for economic growth.

When using the new World Bank variable to proxy for resource abundance, we find that the direct effect of resource wealth (particularly the subset of mineral resource wealth) on income growth is positive and significant. All things considered, an increase in subsoil wealth by one standard deviation–roughly the difference between Senegal and Sweden–would have brought Senegal’s growth performance on a par with that of Mozambique or Kenya; not a huge improvement, but certainly not a growth curse.

Similarly, resource wealth also attenuated the risk of conflict. This is due to a positive indirect effect: Resource wealth raises income, and higher incomes, in turn, reduce the risk of conflict. Again, although the aggregate impact of resource abundance is slight–amounting to less than a 5% reduction in the risk of war in case of a standard-deviation increase in resources–it is still statistically significant.

If this result holds up it will be a significant finding in development economics and could overturn almost 2 decades of conventional wisdom on the curse of natural resources.  The full text is here (gated); a non-gated version is here.

Electricity as female empowerment

This paper investigates the employment effects of a mass roll-out of household electrification in rural South Africa. … My findings show that cooking with wood falls sharply in treated areas over a five-year period, and lighting and cooking with electricity increase substantially. IV employment results indicate asymmetric responses by gender: female employment rates increase by 13.5 percentage points in treated areas, while there are no significant male effects. Middle-poor communities respond most to the new option to use electricity, and employment effects are large for women in their thirties and forties who are less constrained by child-care responsibilities.

That is Taryn Dinkelman, graduating from Michigan, in her job market paper. The basic story is that when you spend a few hours per day tied up in home production — collecting wood and cooking — the provision of electricity can free up significant time for other opportunities. Note that the poorest households don’t benefit as much, probably because while connections were completely subsidized in South Africa, the poorest households remain less able to afford the appliances that use electricity. Also note that this is a very large employment effect on the extensive margin: the female employment rate is 7% in her study area.