fall growth decline more than cancels out prior growth economic (Collier,
2007). There are important parallels for today. Chapter 2 noted that many
countries in Sub-Saharan Africa are currently experiencing a surge in growth
related to high commodity prices. Coastal Nigeria is a famous example of what
can go wrong with natural resources. In the 25 years to 2000, Nigeria earned
some $250 billion in oil revenues, but during these years per capita income fell
by 15 per cent and the number of people living on less than $1 a day increased
from 19 million to 84 million.
More important than the volatility of raw material export prices is the
impact of natural-resource dependence on institutional quality or what has
been called ‘the rentier effect’. With easy tax revenue earned from the export
of raw materials, the state has less need to tax its population. In agreeing to be
taxed populations typically demand that the state develop or permit mecha-
nisms (such as democracy, transparent accounts, and a free press) to ensure
taxation is reasonably fair and spent in a way that is seen as productive – on
infrastructure and education, for example. With easy natural-resource
revenues the government can be corrupt and buy off dissent. When such
bribery can be combined with appeals to ethnic communities, competitive
appeals among different politicians can result in conflict over control and
access to natural-resource rents. Such electoral competition leaves the most
corrupt as winners,which Collier (2007) calls the ‘the survival of the fattest’.
Resource rents gradually erode the good institutions, such as well protected
property rights, that many argue are the foundation for long-term sustainable
growth. There is good empirical support for this effect. Indicators of institu-
tional quality measured in the 1990s (rule of law, political stability and
violence, government effectiveness, absence of corruption, regulatory frame-
work,property rights and rule-based governance) are strongly and negatively
related to natural-resource dependence in 1980 across a large sample of devel-
oping countries (Isham et al.,2005).
Cursed resources are not destiny. Their baleful influence can be overcome
by good institutions (although this is made harder by the effect, discussed
above, that natural resources can undermine institutions). Norway coped even
though oil generates almost 20 per cent of GDP and 45 per cent of exports. The
state oil company (recently privatized) has long been efficient, and the country
recognized that oil and gas were expected to run out in seventy years, so
increased investment rather than consumption by building up a stabilization
fund of $850 billion (as of 2013), invested largely overseas. Landlocked
Botswana is one of a few developing countries to handle its resource wealth
(diamonds) well, experiencing several decades’ growth of over 8 per cent after
the 1970s when they were first exported.
Geography and state formation
Soon after publishing his 1998 book Jared Diamond noted that he had not
addressed a conundrum. If the advantages of geography in 11,000 BCE can
240 Patterns and Determinants of Economic Growth