Thorvaldur Gylfason

Thorvaldur GylfasonIMF-Middle East Center for Economics and Finance

(CEF)Course on Macroeconomic Management in Natural

Resource-Rich Countries Kuwait City, Kuwait, 6-17 January 2013

MACROECONOMIC CHALLENGES FOR NATURAL RESOURCE- RICH COUNTRIES

OVERVIEW: FIVE PARTS1. Economic geography, old and new2. Sources of growth3. Natural resources and economic

growth: Selected policy issues4. Cases and success stories

• Botswana, Chile, Mauritius, Norway• Mixed blessing? • Keys to success?

5. Empirical evidence

Assigned key role to natural resource wealth and raw materials

Tended to equate those resources with economic strength

Yet, many resource-abundant countries are poor, while several resource-poor countries are rich

Prime Minister Putin of Russia: “Our country is rich, but our people are

poor.”

1OLD ECONOMIC GEOGRAPHY

National wealth

Intangible capital

Physical capital

Natural capital

COMPOSITION OF WORLD’S NATIONAL WEALTH In the world as a

whole, natural capital constitutes a small part of national wealth, or about 6%

Even so, natural capital remains important in a number of countries

Advanced countries (US, Canada, Australia, and others) have outgrown their dependence on natural capital, including agriculture

SHARE OF NATURAL CAPITAL IN TOTAL TANGIBLE CAPITAL 2000

From blue to red: Increased resource intensity

Tangible capital is produced capital plus natural capital, and does not include human capital and social capital

SHARE OF NATURAL CAPITAL IN TOTAL CAPITAL 2000

From blue to red: Increased resource intensity

Total capital is produced capital plus natural capital plus intangible capital, including human capital and social capital

Recognizes several different sources of wealth, emphasizing human capital and, increasingly, social capital Social capital refers, among other things,

to governance, institutions, and trust Many resource-rich countries have

fared badly, while several resource-poor countries have done well

There are many kinds of capital and many different sources of growth

NEW ECONOMIC GEOGRAPHY

Listen to Lee Kwan Yew, founding father of Singapore (1959-1991):

“I thought then that wealth depended mainly on the possession of territory and natural resources, whether fertile land ..., or valuable minerals, or oil and gas. It was only after I had been in office for some years that I recognized ... that the decisive factors were the people, their natural abilities, education and training.”

FROM NATURAL RESOURCES TO HUMAN CAPITAL

1. Saving and investment Real capital

2. Education, health care Human capital

3. Exports and imports Foreign capital

4. Democracy and freedom Social capital

5. Stability Financial capital

6. Diversification away from Natural capital

Effects on growth are undisputed

Effects on growth are somewhat controversial

2SOURCES OF GROWTHExtensive vs. intensive growth

1. Saving and investment Real capital

2. Education, health care Human capital

3. Exports and imports Foreign capital

4. Democracy and freedom Social capital

5. Stability Financial capital

6. Diversification away from Natural capital

All six are generally considereddesirable in and of themselvesHow to attain these goals, however, is another matter

SOURCES OF GROWTHEfficiency, institutions, and governance

How much government involvement is needed to diversify? Pros and cons of industrial policy (Rodrik,

2004) Picking winners seldom works, but, even so,

cutting losses can be fruitful Presupposes competent civil service, but that’s

OK Prone to political capture and corruption, but so

is, e.g., privatization as in Russia Never works? But recall successes in South Korea

and Latin America, e.g., Chile Support for R&D vs. entrepreneurship à la Pigou Do international rules leave limited scope for

industrial policy? Not really

DIVERSIFICATION:INDUSTRIAL POLICY?

Two suggestions Encourage new industries in line with

country’s comparative advantages and available expertise in public administration

Follow the market rather than try to take the lead

Need solutions based on general principles and tailored to specific circumstancesNot one-size-fits-all

DIVERSIFICATION:INDUSTRIAL POLICY?

Opportunities for finance – and pitfalls Banks pick customers, some win, some lose

Example from IcelandFishing rights are allocated free of charge to

boat owners even if, by law, Iceland’s fish is a common property resource

Fishing quotas were quasi-legally, or perhaps illegally, used as collateral for crushing private debts intended to support their branching out as well as speculation

Banks were privatized in like manner, and crashed

DIVERSIFICATION:ROLE FOR FINANCE?

promptly

DIFFERENT KINDS OF CAPITAL AND GROWTH

Growth

Real capital

• Investment

Human capital

• Education• Fertility

Social capital

• Corruption• Democracy Financial

capital• Inflation

Natural capital

Resource depletion drag

Leave out foreign capital for simplicity

Governance affects linkages

RESOURCE DEPLETION DRAG: THE ALGEBRA

Cobb-Douglas production function

K/Y is constant

Collect Y on left-hand side

Solve for Y

Divide through by L

RESOURCE DEPLETION DRAG : THE ALGEBRA

If N, e.g., oil wealth, declines by u% per year, then gN = -u

Oil extraction u slows down growth as does population growth gL

RESOURCE DEPLETION DRAG : THE ALGEBRA

If N, e.g., oil wealth, declines by u% per year, then gN = -u

Resource depletion drag and population drag appear side by side

NATURAL CAPITAL AND OTHER KINDS OF CAPITAL

Natural

capital

Education

Corruption

Democracy

Investment

Finance

DETERMINANTS OF GROWTH

GrowthIn

vest

men

t

Expo

rts

Educ

atio

n

Stab

ility

Dive

rsifi

catio

n

Double diversification is good for growth, and for other determinants of growth

Double diversification = economic and political

diversification

Four main areas1. Fiscal policy2. Monetary, financial, and

exchange-rate policy and the Dutch disease

3. Institutions and governance4. Diversification

Economic, away from excessive dependence on a few resources

Political, away from dependence on or subjugation to narrowly based power elites

3POLICY ISSUES IN RESOURCE RICH COUNTRIES

FISCAL GOVERNANCE Natural resource wealth is an efficient tax

base because resource taxation causes minimal distortions to economic behavior Case in point: Iceland’s missed opportunity Could have auctioned off catch quotas and used

proceeds to abolish personal income taxes Chose instead to allocate fishing quotas to boat

owners free of charge Then chose to privatize its banks the same way,

and they all collapsed a few years later in 2008 Important to reduce other less efficient taxes

to keep overall tax burden reasonable Also, spend tax revenues efficiently Taxes vs. fees

Pigovian principle

FISCAL RULES Price stabilization funds

Build up reserves when commodity prices are high Use up reserves when prices are low

Aim is to shield producers from price fluctuations Subject to similar reservations as stabilization policies

Example from Chile Government can run a deficit larger than the target

of zero, or 1% surplus, to the extent that Output falls short of potential, or Price of copper is below its medium-term (10-year)

equilibrium Two panels of independent experts determine the output

gap and the medium-term equilibrium price of copper

DUTCH DISEASE: HOW OIL EXPORTS CROWD OUT NONOIL EXPORTS

Foreign exchange

Real

exc

hang

e ra

te

Imports

Exports without oilExports with oil

A

C BOil discovery leads to appreciation, and reduces nonoil exports

Composition of exports matters

Term refers to fears of de-industrialization that gripped the Netherlands following appreciation of Dutch guilder after discovery of natural gas deposits in North Sea around 1960

Is it a disease? Some say No, viewing it simply as matter of one

sector’s benefiting at the expense of others, without seeing any macroeconomic or social damage done

Others say Yes, viewing the Dutch disease as an ailment, pointing to the potentially harmful consequences of the resulting reallocation of resources – from high-tech, high-skill intensive service industries to low-tech, low-skill intensive primary production, for example – for economic growth and diversification

DUTCH DISEASE: DISEASE OR NOT?

Overvaluation of currency hurts other exports and import-competing industries Norway’s total exports were stagnant in proportion

to GDP long after oil discoveries, but no longer Oil exports have crowded out nonoil exports

Nokia is Finnish, LM Ericsson is Swedish, B&O is Danish Norway’s almost unique unwillingness to join EU

Keeping inflation low to avoid overvaluation Price stability requires good monetary governance

through independent yet accountable central banks Healthy financial sector development also requires

good monetary governance, including transparency

DUTCH DISEASE: DIFFERENT MANIFESTATIONSChina’s undervalued

renminbi

Rent seeking … Especially in conjunction with ill-defined property

rights, imperfect or missing markets, and lax legal structures

… tends to divert resources away from more socially fruitful economic activity

International initiatives to raise transparency Extractive Industries Transparency Initiative (EITI)

aims to set global standard for transparency in oil, gas and mining

Revenue Watch Institute (RWI) promotes responsible management of oil, gas, and mineral resources

Natural Resource Charter sets out principles for how to manage natural resources for development

DUTCH DISEASE: DIFFERENT MANIFESTATIONS

False sense of securityNeglect of education

Other people’s money

Volatility of commodity prices leads to volatility in exchange rates, export earnings, output, and employment

Volatility can be detrimental to investment and growth

Hence, natural-resource rich countries may be prone to sluggish investment and slow growth due to export price volatility

Likewise, high and volatile exchange rates tend to slow down investment and growth

DUTCH DISEASE: DIFFERENT MANIFESTATIONS

VOLATILITY AND GROWTH

Source: http://notendur.hi.is/gylfason/pic22.htm

GOOD POLICIES MATTER Fiscal policies need to foster efficient revenue

collection as well as efficient, growth-friendly public spending To be efficient and fair, the utilization of natural

resources requires that the owners – the people – be appropriately compensated

Property rights to natural resources belong to the people by international law Article 1 of the International Covenant on Civil and

Political Rights states that “All people may, for their own ends, freely dispose of their natural wealth and resources”

Monetary policies need to avoid misalignment and excessive volatility of the currency

GOOD INSTITUTIONS AND GOVERNANCE ALSO MATTER Consider Norway

From day one, Norway’s oil and gas reserves were defined by law as common property resources, clearly establishing the legal rights of the Norwegian people to the resource rents

On this legal basis, the government has absorbed about 80% of the resource rent over the years

Government laid down economic as well as ethical principles (‘commandments’) to guide the use and exploitation of the oil and gas for the benefit of current and future generations of Norwegians

GOOD INSTITUTIONS AND GOVERNANCE Norway was a well-functioning, full-

fledged democracy long before its oil discoveries

Democrats are less likely than dictators to try to grab resources to consolidate their political powerElsewhere, point resources such as oil and

minerals have proved particularly “lootable” Petroleum industry has conferred sizable

spillover benefits on others at home and abroad through transfer of technology as well as research and development

Nigeria’s economy minister: “Oil has made us lazy”

Norwegians work less than Danes and Swedes, true, but no less than Germans

CLASSROOM DISCUSSIONWhy did Norway succeed?

Because it is so small? – (Pop. 4.7

million)Does country size matter for success?

Success stories without natural resources Hong Kong Japan Singapore Switzerland

Success stories with natural resources Botswana Chile Mauritius Norway, again

How did they succeed?

4SUCCESS STORIES

How Botswana succeeded Started out at independence in 1966 with 12 km

of paved roads, 22 college graduates, and 100 secondary-school graduates

Diamonds, discovered in 1967, provide tax revenue equivalent to 33% of GDP

Sub-Saharan Africa’s highest per capita GNI Good policies, good institutions, democracy

How Mauritius succeeded Emphasized trade and education in lieu of sugar Cosmopolitan population Again, good policies, good institutions, democracy

Look at some economic and social indicators

SUCCESS STORIES

Frankel (2010)

Acemoglu et al.(2003)

But not perfect

BOTSWANA AND DIAMONDS

Per Capita GNI (USD at PPP)

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

0

2000

4000

6000

8000

10000

12000

14000

BotswanaCongo, Dem. Rep.Sierra Leone

Increase in life expectancy in years 1980-2008

-6

16

BOTSWANA AND DIAMONDS

Per Capita GNI (USD at PPP) Democracy

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

0

2000

4000

6000

8000

10000

12000

14000

BotswanaCongo, Dem. Rep.Sierra Leone

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

-8

-6

-4

-2

0

2

4

6

8

10

BotswanaSierra Leone

7-2

Increase in life expectancy in years 1980-2008

Average democracy index 1980-2008-6

16

Generally, democracy and growth go

together

CHILE AND COPPER


1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

0

2000

4000

6000

8000

10000

12000

14000

ChilePeruZambia

10

13

-6

CHILE AND COPPER


1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

0

2000

4000

6000

8000

10000

12000

14000

ChilePeruZambia

46-1

10

13

-6

-12-10-8-6-4-202468

1012

ChilePeruZambia

MAURITIUS AND SUGAR


0

2000

4000

6000

8000

10000

12000

14000

Costa RicaFijiMauritius

7

5

6

MAURITIUS AND SUGAR


0

2000

4000

6000

8000

10000

12000

14000


10

4

107

5

6

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

-6

-4

-2

0

2

4

6

8

10

12


NORWAY AND OIL


0

10000

20000

30000

40000

50000

60000

70000

AlgeriaNorwaySaudi Arabia

5

13

12

NORWAY AND OIL


-12-10

-8-6-4-202468

1012


0

10000

20000

30000

40000

50000

60000

70000


10

-4

-10

5

13

12

The problem is not the existence of natural wealth as such ... … but rather the failure to avert the

dangers that accompany the gifts of nature

Norway is, so far, a success story Government invests 80% of oil rent

entirely in foreign securities 60% in equities 40% in fixed-income securities

NORWAY: NOT JUST OIL

Norway always had its natural resources

It was only with the advent of educated labor that it became possible for the Norwegians to harness those resources on a significant scale

Human capital accumulation was the primary force behind the economic transformation of Norway Natural capital was secondary

NORWAY: NOT JUST OIL

The purpose of the oil fund Share the wealth fairly: Pension fund Shield domestic economy from

overheating and possible waste Fund has grown huge: USD 450

billion That makes almost USD 100K per

person Norwegians have resisted temptation

to use too much of the money to meet current needs

OIL FUND, NOW PENSION FUND

Long tradition of democracy and market economy in Norway since before the advent of oil Large-scale rent seeking was

averted as oil was, by law, defined as a common-property resource from the beginning

Adequate investment performance Excellent education record

Female college enrolment doubled from 46% of each cohort in 1991 to 94% in 2006

GOOD INSTITUTIONSAND GOVERNANCE

Some (weak) signs of Dutch disease Long-stagnant exports, sluggish FDI Limited interest in joining EU and EMU

Some signs also of unwillingness to undertake difficult reforms Health care provision Regional policy (shared border with

Russia) Inefficient fisheries policy

BUT, YES, CHALLENGES

FROM FINANCE MINISTRY TO CENTRAL BANK In anticipation of increased statutory

Central Bank independence in1999 to immunize monetary policy from political influence, the management of oil fund was delegated by Ministry of Finance to Central Bank 1997

Aim was to immunize oil fund management from political interference by increasing the distance between politicians and the oil fund

‘Outsourcing’ to encourage pluralism and avoid conflict of interest

Independent courts Independent media Independent universities

Natural resources bring risks A false sense of security leads

people to underrate or overlook the need for good policies and institutions, good education, and good investment

Awash in easy cash, they may find that hard choices perhaps can be avoided

Awareness of these risks is perhaps the best insurance policy against them

GOOD TIMES DEMAND STRONG DISCIPLINE

NorwayUnited Kingdom

BrazilIndonesia

NigeriaAlgeriaKuwait

United Arab EmiratesVenezuela, RB

CanadaMexico

ChinaIran, Islamic Republic

Saudi ArabiaRussian Federation

United States

0 500000 1000000 1500000 2000000

16 countries 4 industrial countries 12 developing countries

5SUBSOIL ASSETS (USD AT 2000 PRICES AND EXCHANGE RATES)

SUBSOIL ASSETS PER PERSON (USD AT 2000 PRICES AND EXCHANGE RATES)

United KingdomEcuadorMexico

Syrian Arab RepublicUnited States

KazakhstanAustralia

Russian FederationCanadaGabon

NorwayOman

Saudi ArabiaKuwait

0 50,000 100,000 150,000 200,000

27 countries 5 industrial countries 22 developing countries

whose average per capita

growth rate 1960-2000 was 0.1% per year compared with 1.4% for the

sample of 164 countries as

a whole

COMPOSITION OF TOTAL WEALTH 2000 (%)

High-income countries

Low-income countries

Real capital 17 16Natural capital Subsoil assets

2(1)

29(6)

Intangible capital Human capital Social capital

81 55

Total wealth: estimated by perpetual inventory method as present discounted value of future consumption

Real capital: estimated from investment figures Natural capital: cropland, pastureland, subsoil assets, timber

resources, nontimber forest resources, and protected areas Intangible capital: estimated as residual

Source: World Bank (2006)

MINERAL-RICH COUNTRIES: SELECTED INDICATORS

School life expectancy 2005 (years)

Fertility 1960-2000 (births per

woman)

Public health

expenditure 2004

(% of GDP)

Democracy 1960-2000

(index)

Corruption 2005

(index)

Investment 1960-2000 (% of GDP)

Per capita growth

1960-2000 (% per year)

Mineral-rich countries

11.7 4.5 2.4 -3.2 3.3 24.3 0.1

Lower middle-income countries

11.4 3.6 2.6 -1.2 3.0 24.3 3.6

Upper middle-income countries

13.5 2.9 3.8 2.2 4.1 25.9 1.7

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

-5

-4

-3

-2

-1

0

1

2

3

4

5

Natural capital as share of total wealth

Grow

th o

f per

cap

ita G

DP, a

djus

ted

for i

nitia

l inc

ome

(% p

er y

ear)

False contrast: No inconsistency between favorable effects of commodity price booms on output in the short run and adverse effects on long-run growth

Size of balls reflects size of countries

-0.67

Natural capital share and growth are inversely

related

ECONOMIC GROWTH AND NATURAL CAPITAL 1960-2000

EDUCATION AND NATURAL CAPITAL 2000-2005

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.90

5

10

15

20

25


Scho

ol li

fe e

xpec

tanc

y

-0.82Natural capital crowds out human capital

School life expectancy (SLE) is the total number of years of schooling (primary to tertiary) that a child can expect to receive

ECONOMIC GROWTH AND EDUCATION 1960-2000

0 5 10 15 20 25

-8

-6

-4

-2

0

2

4

6

School life expectancy

Grow

th o

f per

cep

ita G

DP, a

djus

ted

for

initi

al in

com

e (%

per

yea

r)

0.69Education is good for growth

CORRUPTION AND NATURAL CAPITAL 1960-2000

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.90

2

4

6

8

10

12


Corr

uptio

n pe

rcep

tions

inde

x

-0.74

Natural capital crowds out social capital

Mor

e co

rrupt

ion

ECONOMIC GROWTH AND CORRUPTION 1960-2000

1 2 3 4 5 6 7 8 9 10 11

-8

-6

-4

-2

0

2

4

6

Corruption perceptions index

Grow

th o

f per

cap

ita G

DP, a

djus

ted

for

initi

al in

com

e (%

per

yea

r)

0.75Corruption hurts growth

More corruption

DEMOCRACY AND NATURAL CAPITAL 1960-2000

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

-10

-5

0

5

10

15


Dem

ocra

cy

-0.67Natural capital crowds out social capital

ECONOMIC GROWTH AND DEMOCRACY 1960-2000

-15 -10 -5 0 5 10 15

-8

-6

-4

-2

0

2

4

6

Democracy

Grow

th o

f per

cap

ita G

DP, a

djus

ted

for

initi

al in

com

e (%

per

yea

r)

0.51

Democracy is good for growth

DEMOCRACY AND EDUCATION 1960-2000

0 5 10 15 20 25

-15

-10

-5

0

5

10

15

School life expectancy

Dem

ocra

cy

0.62Human capital and social capital go together

CORRUPTION AND DEMOCRACY 1960-2000

-15 -10 -5 0 5 10 150

1

2

3

4

5

6

7

8

9

10

Democracy

Corr

uptio

n pe

rcep

tions

inde

x

0.60

Different aspects of social capital go togetherM

ore

corru

ptio

n

ECONOMIC GROWTH AND NATURAL CAPITAL 1960-2000, AGAIN

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

-5

-4

-3

-2

-1

0

1

2

3

4

5


Grow

th o

f per

cap

ita G

DP, a

djus

ted

for

initi

al in

com

e (%

per

yea

r)

-0.67

Natural capital share and growth are inversely related

ECONOMIC GROWTH AND SUBSOIL ASSETS 1960-2000

0 0.5 1 1.5 2 2.5

-8

-6

-4

-2

0

2

4

6

Subsoil assets as share of total wealth

Grow

th o

f per

cap

ita G

DP, a

djus

ted

for

initi

al in

com

e (%

per

yea

r)

-0.10

Subsoil asset share and growth are inversely related,

but rank correlation is weak, so need multiple regression

TABLE 1. REGRESSION RESULTS ON NATURAL CAPITAL AND ECONOMIC GROWTH

Model 1

Initial income

-0.74(5.2)

Natural capital share

Natural capital per personDemocracy

Investment rate (log)School life expectancy (log)Fertility

Countries 164

Adjusted R2 0.14

Note: t-values within parentheses.


Model 1 Model 2

Initial income

-0.74(5.2)

-0.49(3.1)


-0.04(5.3)

Natural capital per person

Democracy


Countries 164 125

Adjusted R2 0.14 0.18


Model 1 Model 2 Model 3

Initial income

-0.74(5.2)

-0.49(3.1)

-0.96(5.3)


-0.04(5.3)

-0.06(7.1)


0.10(4.5)

Democracy


Countries 164 125 124

Adjusted R2 0.14 0.18 0.29


Model 1 Model 2 Model 3 Model 4

Initial income

-0.74(5.2)

-0.49(3.1)

-0.96(5.3)

-1.07(5.2)


-0.04(5.3)

-0.06(7.1)

-0.05(4.7)


0.10(4.5)

0.08(3.7)

Democracy 0.07(2.2)


Countries 164 125 124 113

Adjusted R2 0.14 0.18 0.29 0.27


Model 1 Model 2 Model 3 Model 4 Model 5

Initial income

-0.74(5.2)

-0.49(3.1)

-0.96(5.3)

-1.07(5.2)

-1.24(7.0)


-0.04(5.3)

-0.06(7.1)

-0.05(4.7)

-0.04(5.3)


0.10(4.5)

0.08(3.7)

0.06(3.3)

Democracy 0.07(2.2)

0.07(2.7)

Investment rate (log)

2.92(6.8)

School life expectancy (log)Fertility

Countries 164 125 124 113 113

Adjusted R2 0.14 0.18 0.29 0.27 0.48


Model 1 Model 2 Model 3 Model 4 Model 5 Model 6

Initial income

-0.74(5.2)

-0.49(3.1)

-0.96(5.3)

-1.07(5.2)

-1.24(7.0)

-1.60(7.8)


-0.04(5.3)

-0.06(7.1)

-0.05(4.7)

-0.04(5.3)

-0.03(4.0)


0.10(4.5)

0.08(3.7)

0.06(3.3)

0.05(2.5)

Democracy 0.07(2.2)

0.07(2.7)

0.07(2.7)


2.92(6.8)

1.72(3.2)

School life expectancy (log)

0.94(4.0)

Fertility

Countries 164 125 124 113 113 90

Adjusted R2 0.14 0.18 0.29 0.27 0.48 0.55


Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

Initial income

-0.74(5.2)

-0.49(3.1)

-0.96(5.3)

-1.07(5.2)

-1.24(7.0)

-1.60(7.8)

-1.70(8.5)


-0.04(5.3)

-0.06(7.1)

-0.05(4.7)

-0.04(5.3)

-0.03(4.0)

-0.03(3.1)


0.10(4.5)

0.08(3.7)

0.06(3.3)

0.05(2.5)

0.04(2.3)

Democracy 0.07(2.2)

0.07(2.7)

0.07(2.7)

0.05(2.0)


2.92(6.8)

1.72(3.2)

1.34(2.5)


0.94(4.0)

0.56(2.1)

Fertility -0.40(2.8)

Countries 164 125 124 113 113 90 90

Adjusted R2 0.14 0.18 0.29 0.27 0.48 0.55 0.58

OLS


Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7

Initial income

-0.74(5.2)

-0.49(3.1)

-0.96(5.3)

-1.07(5.2)

-1.24(7.0)

-1.60(7.8)

-1.70(8.9)


-0.04(5.3)

-0.06(7.1)

-0.05(4.7)

-0.04(5.3)

-0.03(4.0)

-0.03(3.3)


0.10(4.5)

0.08(3.7)

0.06(3.3)

0.05(2.5)

0.04(2.4)

Democracy 0.07(2.2)

0.07(2.7)

0.07(2.7)

0.05(2.1)


2.92(6.8)

1.72(3.2)

1.34(2.6)


0.94(4.0)

0.56(2.2)

Fertility -0.40(3.0)

Countries 164 125 124 113 113 90 90

Adjusted R2 0.14 0.18 0.29 0.27 0.48 0.55 0.58

SUR

DECOMPOSITION OF PER CAPITA GROWTH (IN PERCENT)Per capita growth (%) 2.42 1.00

Natural capital share (19.0) 0.47 0.19

Democracy (6.4) 0.35 0.14

Investment (log, 0.29) 0.39 0.16

School life expectancy (log, 0.35) 0.48 0.20

Fertility (1.8) 0.73 0.30

Note: Standard deviations within parentheses.

ECONOMIC GROWTH AND NATURAL CAPITAL SHARE 1970-2010

0 20 40 60 80 100 120

-3

-2

-1

0

1

2

3

4

5

Share of natural capital in total capital (%)

Annu

al a

vera

ge g

rowt

h of

per

cap

ita G

DP a

t PPP

(%)

Source: Computations based on WDI 2012 and World Bank data on natural capital.

Growth = 0.89 - 0.01 NatCap (10.0) (3.9)

146 countries

Update

ECONOMIC GROWTH AND NATURAL RESOURCE RENTS 1970-2010

0 10 20 30 40 50 60 70

-3

-2

-1

0

1

2

3

4

5

Update

Annual average natural resource rents (% of GDP)

Annu

al a

vera

ge g

rowt

h of

per

cap

ita G

DP a

t PPP

(%)

Growth = 0.79 - 0.01 Rents (10.1) (2.0)

183 countries

Source: Computations based on WDI 2012.

These slides will be posted on my website: www.hi.is/~gylfason

THE END

OLD STORY: THE RISKS ARE REAL David Landes (1998) tells the

story of Spain following the colonization of South and Central America which made Spain rich in gold and other natural resources:

“Easy money is bad for you. It represents short-run gain that

will be paid for in immediate distortions and later regrets.”

Thorvaldur Gylfason

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