70307 Rents to Riches? Factoring in the Political Economy of Natural Resource-Led Development Naazneen Barma, Kai Kaiser, and Lorena Viñuela . Subsoil natural resource endowments and associated industry rents has decreased since 2000. Conversely, rents—if well harnessed and managed—can serve as East Asia and the Pacific‘s share grew from 9 to 17 a boon to developing countries. Yet, too often, the percent of total natural resource rents; and between extractive industries of oil, gas, and mining have 2000 and 2008, Sub-Saharan Africa‘s natural been associated with the ―resource curse‖ whereby resource rents increased sixfold, with oil rents nations that are more dependent on nonrenewable representing more than two-thirds of the total.ii In natural resources grow more slowly than resource- short, rents from natural resources are becoming poor countries and often suffer from weaker more important in the developing world, where poor governance and institutional quality. i In many governance and weak institutional quality makes developing countries, natural resources are the main countries vulnerable to the resource curse. game in town—and the extractive industries sector is both shaped by and, in turn, influences political, Figure 1: Extractive industry rents by income level, 2008 economic, societal, and institutional dynamics. Understanding the political economy of resource Low income High rents is therefore crucial to achieving sustainable 2% income: Lower development built on resource riches. middle nonOECD income 13% As global demand for natural resources grows—and 28% High in response to historically high commodity prices— income: the push for new discovery and intensified extraction OECD has increasingly moved into ―frontier areas‖ in the 21% developing world. Although the bulk of resource Upper middle rents are currently generated in higher income income settings, almost a quarter of global extractive 36% industries rents accrue to low-income and lower middle-income settings (Figure 1). A breakdown of rent flows by region (Figure 2) shows the increasing significance of the developing world‘s participation Source: Wealth of Nations Database (World Bank2011). in the extractive industries. Although the Middle East has maintained its leading position in terms of rents derived from petroleum, its share of global extractive Figure 2: Extractive Industry Rents by Region, 2000–08 context. Adopting an approach to institutional (US$ billions) arrangements that emphasizes local variation and innovation as much as best international practice, will be central to the ability of governments and billions 4,000 development partners to achieve salutary 3,000 developmental outcomes.v Thus, this note presents an 2,000 analytical framework for assessing a country‘s political economy and institutional environment as 1,000 they relate to natural resource management and, on 0 that basis, it offers targeted recommendations across 2000 2001 2002 2003 2004 2005 2006 2007 2008 the natural resource value chain that are technically sound and compatible with the identified underlying Africa East Asia and Pacific Europe and Central Asia Latin America and Caribbean incentives. Middle East and North Africa OECD Source: Wealth of Nations Database (World Bank 2011). The Natural Resource Management Value Chain From the public interest perspective, many resource- dependent developing countries pursue short-sighted, Natural resource management spans many specific, suboptimal policies regarding the extraction and interrelated decisions made by governments in capture of resource rents and spending and savings interaction with resource developers (private and from their resource endowments. This note attempts state-owned) and society. The World Bank has to make sense of these outcomes and suggest better adopted a ―value chain approach‖ to understanding policies at each step in the natural resource NRM, with the primary objective of prescribing an management (NRM) value chain by focusing on two integrated set of feasible policy interventions to central political economy dimensions: the degree to transform natural resource potential into sustainable which governments can make credible intertemporal development outcomes. The value chain (Figure 3) commitments to both resource developers and encompasses the institutional arrangements across citizens and sustain durable pacts sector policies, and five key dimensions of NRM: (1) sector organization the degree to which governments are inclusive and and the award of contracts and licenses; (2) inclined to turn resource rents into public goods and regulation and monitoring of operations; (3) sustainable development outcomes. collection of taxes and royalties; (4) revenue distribution and public investment management; and Much has been learned about the economics and (5) implementation of sustainable development associated policy options of natural resource-led policies.vi growth. The commodity boom and bust cycle of the 1970s focused attention on these issues in the Figure 3: The Natural Resource Management Value international development community.iii Today, Chain historically high commodity prices and the growing importance of extraction in many developing countries underlie a renewed interest in policy issues pertaining to natural resource-led development and a number of measured policy options for natural resource-led growth have been advanced.iv Yet, for the most part, scholars and practitioners have fallen short of translating broad agreement on ―good practice‖ policies into concrete steps to navigate and Source: Mayorga Alba 2009. address the institutional and political obstacles associated with extracting and allocating resource The NRM value chain spans the key sequence of rents for developmental purposes. steps that a resource-dependent country must undertake in transforming its natural resource rents This analysis emphasizes instead the notion of ―good into developmental riches. When embedded in a fit‖—taking the position that welfare-promoting political economy context, the value chain also offers policies, institutions, and governance must be the potential for a comprehensive assessment of the tailored, at least in part, to a country‘s specific governance and political economy parameters that 1 affect a resource-dependent country‘s ability to transform rents into riches. Box 1. Typical Paradoxes in Natural Resource Management Extracting Resource Wealth The paradoxes involved in devising models of ownership and allocation of extraction rights in the natural resource sector include the following:  The predictability of policy and the regulatory framework surrounding the natural resource sector is essential to salutary developmental outcomes, yet it is common for governments to seek to retain discretion to change the rules of the game.  Contract negotiations in the hydrocarbon and mineral sectors are characterized by asymmetric capacity and information between the parties, but the relative bargaining power between governments and investors shifts over the lifecycle of extractive industry projects.  Resource rents have the potential to allow governments expand the amount of public goods they provide without imposing additional taxes; but a tension exists around a private versus public calculus in decision-making around ownership of natural resources, one that is intensified because of the stakes involved. Taxing Resource Wealth The paradoxes involved in designing tax policy and the administrative instruments used for natural resource revenue collection include the following:  Despite having weak revenue administration governance and capacity, many low-income resource- rich countries resort, in practice, to overly complex, multi-rate fiscal regimes.  Developing countries use generous tax incentives to compensate investors for high levels of risk and to attract resources to develop extractive industries; nevertheless, their inability to sustain such commitments over time further deteriorates their credibility and discourages investment in the sector.  Mineral resources provide countries with considerable rents and relative administrative ease—since taxing these resources requires less effort than taxing other economic activities—but many resource- dependent countries neglect basic investments in revenue administration capacity that could increase public revenue and allow for more a progressive and flexible fiscal regime, precisely as a result of the incentives generated by the sector. Investing Resource Wealth The paradoxes involved in deciding how natural resource revenues should be distributed to the citizenry and transformed into productive economic assets include the following:  Resource rents offer the prospect of investing heavily in physical infrastructure that would generate high returns in capital-scarce countries, but such countries often fail to invest proactively in the processes and systems needed to yield the very best projects as a result of political incentives and the features of the sector.  Investment in public infrastructure is one of the policy tools that resource-dependent countries can use as the basis for economic diversification and reduced cyclicality; nonetheless, public investment tends to be highly pro-cyclical, thus unsustainable. Failure to maintain projects generates repeated ―build, neglect, rebuild‖ episodes.  A benevolent national planner would ideally allocate resource rents to finance the highest return public investment projects, regardless of their geographic location; but political economy dynamics often militate toward earmarking investments to the location of resource extraction or fragmenting them across various narrower political constituencies. 2 Experiencing the Resource Paradox disaggregated lens of the NRM value chain, two key issues emerge in characterizing how a government Practitioners in resource-dependent countries face manages its natural resources: (1) How effectively many of the same challenges of poor policy making, does a government generate and capture rents from limited capacity, and weak institutions as developing the extractive industries? (2) How does the countries in general. Yet significant factors government spend resource wealth and to what extent distinctive to resource-dependent settings shape the is it invested in a sustainable, pro-development political economy context and can condition the manner? In essence, outcomes across the NRM value overall development process in specific ways: in chain can be reduced to two core rent arenas: particular, the finite nature of hydrocarbons and generating rents through extraction and taxation and minerals; the supernormal profits yielded by resource distributing rents through spending and investment extraction and the state‘s sovereign right to some (Figure 5). Many different domestic and international portion of those rents; the fact that commodity prices stakeholders are involved in natural resource policy are extremely volatile and, from the perspective of making and extraction, and the relationships among most developing countries, are set exogenously; and these actors are constantly shifting across the value the uniqueness and long timeframe of the extraction chain. or production cycle and ownership structures in the Figure 5. The Two Key „Rent Arenas‟ in the Natural resource sectors. Together, these distinctive qualities Resource Value Chain position resource rents as central to the political economy of resource-dependent settings and make Generating resource Distributing resource the extractive industries particularly vulnerable to rents rents problems of intertemporal credibility. Viewed through the lens of the empirical experiences resource ministries, sector agencies, of low-income, resource-dependent countries, it is state-owned MoF public investment enterprise, private contractors, and more useful—in both analytical and practical terms— companies beneficiaries to speak of a set of ―resource paradoxes‖ rather than a resource curse. From an operational perspective, the generation, taxation, and distribution of rents is Source: Barma et al. 2012, p. 11, based on Webb 2010. conditioned by key government choices in terms of policies and institutions: What models of ownership Political economy scholarship often relies on regime are used in the sector and how are extraction rights typologies to distinguish why certain types of country allocated? How should tax policy be designed and settings yield certain outcomes.vii In order to help what administrative instruments should be used to country counterparts and development practitioners collect revenue? How should resource revenues be diagnose the political economy trajectory a resource- distributed to the citizenry and transformed into dependent country is embarked upon, this volume productive economic assets? The research for Rents advances a simple typology that is structured around to Riches identified typical NRM paradoxes that two crucial dimensions: beset resource-dependent developing countries, as listed in box 1. Together, these paradoxes provide a  The credibility of intertemporal picture of the formidable challenges low-income commitment—or the degree to which policy countries face as they attempt to transform resource stability and bargains over time can be rents into sustainable development riches. The enforced and deviations from such analysis presented in the remainder of this note agreements are subject to sanction; and provides greater detail on the dynamics of these paradoxes and proposes potential interventions to  The overall political inclusiveness of the resolve them. prevailing state-society compact—or the extent to which diverse social, economic, and political viewpoints are incorporated Transforming Rents into Riches into decision-making, and a sense of either collectivist or clientelist welfare is Natural resources yield ―rents‖—or extraordinary privileged over purely elite interests. profits from their production—that are crucial to the political economy of resource-led development. Viewing natural resource rents flows through the 3 Table 1: Typology of Natural Resource-Dependent provides, in turn, peaceful order and some degree Settings of public goods for society. Hegemonic governments can appear either predatory or Credibility of intertemporal commitment relatively benevolent.ix Time horizons are lengthened due to regime stability; combined with Political Less credible/weaker More credible/stronger greater institutionalization, this enables credible inclusiveness enforcement enforcement intertemporal commitment. Less Patrimonial rule Hegemonic inclusive/ government Individualized political  Clientelist pluralism: political-economic settings less authority, built on a Institutionalized one- collectively hierarchy of cronyism; party regime; either where some degree of political competition takes oriented emphasis on private predatory or benevolent; place (mainly through electoral contests), usually (elite) goods; emphasis on private on the basis of extensive patron-client networks. exploitation of public (elite) goods with some resources for private particularist and public The need to reward supporters results in some gain. goods. public goods provision; but the reliance on clientelist distribution of particularist goods to More Clientelist pluralism Programmatic inclusive/ pluralism mobilize support undermines vertical and Political competition more based on extensive Electoral competition horizontal accountability and has self-enforcing collectively use of clientelism; based on programs characteristics that lead to the under-provision of oriented provision of geared toward collective public goods that enhance collective welfare. particularist goods; low welfare enhancement; horizontal provision of public Time horizons are short because politics are accountability. goods; horizontal and relatively unpredictable, and the degree of vertical democratic institutionalization (and hence constraint on accountability. power) is low. Source: Barma et al. 2012, p. 12, adapted from Barma and Viñuela 2010.  Programmatic pluralism: electoral competition on the basis of programs that are geared toward Although these dimensions are interdependent to collective welfare enhancement, with an emphasis some extent, positioning them against each other on society-wide public goods provision. A higher yields a typology of four distinct country settings, degree of institutionalization brings with it built- each with distinctive implications for natural resource in democratic mechanisms of horizontal and rent generation and allocation. vertical accountability, facilitates the articulation and protection of property rights, and enables  Patrimonial rule: political-economic settings credible intertemporal commitment. characterized by individualized political authority, usually resting on a hierarchy of cronyism, where In summary, a country‘s positioning along the two the exercise of power faces few constraints. These key dimensions captured in the typology—the can be settings of persistent instability and a high credibility of intertemporal commitment and degree degree of political contestation with frequent of political inclusiveness—determines how turnover among conflicting groups, or they can be stakeholder incentives and the institutional landscape characterized by dictators who avoid establishing interact with the structural characteristics of natural organizational arrangements that constrain their resources and hence how a country actually actions (such as an institutionalized ruling party). experiences the resource paradox. In noninclusive These ―roving bandits‖ are typically unlikely to settings where the intertemporal credibility of make credible intertemporal commitments or commitment is low, rent generation will be weak protect property rights because they are because the state will find it difficult to make unconstrained.viii In settings of patrimonial rule, beneficial extractive bargains with resource extractive capacity is low, constant theft from developers, and rent allocation will be biased toward society means economic production is low, time consumption by political-economic elites and away horizons are short, and the exploitation of public from saving and investment for society. Factors that resources for private gain is common. make intertemporal commitments more credible—by lengthening time horizons and strengthening  Hegemonic government: an uncontested, institutionalization and the enforcement of property institutionalized political force or one-party rights—will tend to improve a country‘s performance regime—or stationary bandit—that successfully in terms of rent generation by enabling governments monopolizes ―theft‖ through regular taxation and to strike better deals, at a lower risk premium, with developers. Factors that increase political 4 inclusiveness—incorporating more political, social, Emerging Intervention s for and economic groups into decision making—will make the state more accountable to society and will Addressing the Resource Paradox orient rent allocation toward collective welfare through the provision of public goods and investment The structural characteristics of resource for sustainable development. dependence—especially the very rapid availability of large windfall rents, the concentration of ownership and decision making in the sector, and the often unrivaled access to rents for those with political and Benchmarking Country Context economic power—tend to push resource-dependent developing countries into a setting of patrimonial rule Cross-country governance indicators can provide an or else to entrench regimes in hegemonic initial benchmarking of country context government. This is suggested by the cumulative (https://www.agidata.org/). While all indicators are body of scholarship on the political economy subject to potential measurement bias and error, a dynamics associated with natural resource wealth. number of accessible indicators are publicly available to benchmark a country‘s ability to make credible Development interventions to mitigate the resource intertemporal commitments and its degree of political curse are aimed at assisting reform in countries such inclusiveness. To illustrate how analysts and that their policy-making and institutional framework practitioners may characterize the institutional across the natural resource value chain approximate environment in their country of interest, Figure 6 those to be found in countries squarely within the plots a proxy for ―intertemporal credibility‖ using the ideal of programmatic pluralism. In other words, ―policy coordination indicators from the Public natural resource rents are most reliably transformed Policy Attributes database; and a proxy for ―political into sustainable development riches when a inclusiveness‖ using the ―participation in political government can make credible intertemporal decisions‖ indicator from the French Development commitments to both the extractive companies and its Cooperation Institutional Profiles Database.x. citizens, and when the political regime is inclusive such that the government has incentive to use Political economic dimensions are inherently difficult resource rents to provide public goods that enhance to measure, and there is no substitute for careful collective welfare. country-by-country analysis. The more data sources that are examined and triangulated, the more robust Using a political economy framework for and reliable any quantitative assessment will be; a understanding outcomes in natural resource more qualitative assessment is always useful in management points to two interrelated principles for combination with quantitative indicators—especially enhancing the developmental orientation of the if particular discrepancies across data sets remain, or sector: if the quantitative characterization appears to be strikingly inaccurate. i. Adopt a good-fit approach to natural resource management by tailoring interventions to context Figure 6: Intertemporal Credibility and Political Inclusiveness and; ii. Emphasize the incentive compatibility of interventions such that they support and nudge stakeholders into making developmentally oriented decisions at each step of the value chain. Orthodox approaches to natural resource management that seek to impose best practice arrangements in the sector often miss the distinct policy priorities and reform opportunities in particular countries. A good-fit approach is inherently contingent on context and hinges on the view that building functional institutional capability matters more than achieving specific institutional forms to do Source: Barma et al. 2012, p. 67, Institutional Profi le Database so. And it rests on a clear understanding of (2009) for ―political inclusiveness‖ and Public Policy Attributes stakeholder motivations in designing incentive- Database (2008) for ―intertemporal policy coordination.‖ 5 compatible interventions. In other words, a good-fit credibility or political inclusiveness, or both.xi These approach narrows the gaps between expectation and good-fit interventions are layered against political reality with regard to interventions, aiming to deliver economy contexts such that they ameliorate the improved outcomes through incentive-compatible adverse effects of weak intertemporal credibility and entry points and institutional designs. low political inclusiveness. In most cases, the interventions are elaborated as actions that resource- Table 3: Stakeholders in Extractives-led Development dependent governments could take to enhance resource extraction, taxation, and investment—any of Sector/ Actor Leverage these could be bolstered and enhanced by support Motivation from donors and partnerships with extractives Extractive International Reputational concerns, investors and other stakeholders, including civil industry major international regulations developers: companies society groups. seeking (sustainable) Emerging Reputational concerns, internationals level access Three basic types of incentive-compatible profits/resource rents intervention are possible across the value chain. National mining Domestic political and oil economy, international Some interventions are aimed primarily at extending companies aspirations time horizons, thereby enhancing intertemporal credibility. Other reforms emphasize mobilizing Domestic Continued access to producers contracts stakeholders in order to enable collective action in natural resource management, thereby broadening Host Energy, oil and Technical reputation, governments: mining ministries bureaucratic power political inclusiveness. A third form of intervention is seeking slightly different: it enclaves institutions and capacity investment, Executive International reputation and linkages with country in NRM so that some, albeit limited, functionality is rents, development groupings (e.g., G-8, G-20) possible even when the wider political economy Central finance Technical reputation, dynamics are perverse. Rents to Riches provides a agencies bureaucratic power more in-depth treatment in the three chapters on extraction, taxation, and investment. Subnational (Predictable) access to rent governments streams; infrastructure development Ultimately, the best and surest trajectory of natural- Sector ministries Sectoral outcomes resource-led development is to engage as many global, national, and community-level stakeholders as Legislatures Political party interests and capacity possible in defining the public interest and in holding decision makers accountable for achieving that goal. Civil society: Non-Extractive Competitiveness and “a many- industry private linkages with extractive This volume‘s political economy framework splendored tradable sector industry demonstrates that where intertemporal credibility is thing� weak and political inclusiveness low, political NGOs Transparency, accountability economic elites are able to siphon resource rents away from developmentally oriented outcomes. The Local Voice, government communities responsiveness, implications for engagement are clear: lengthening accountability time horizons enhances the ability of governments to increase potential rent generation, and improving Source: Barma et al. 2012, p. 233. political inclusiveness supports the orientation of rent distribution towards the collective good. The logic of The technical chapters on sector organization, the framework, along with the case material revenue mobilization, and public investment in Rents presented throughout this book, thus demonstrates the to Riches examine the specifics of NRM practices, potential for mediating the resource paradox through highlighting how institutions, incentives, and intelligent and resilient institutional design. stakeholders combine and interact with resource Successful development interventions must work extraction, taxation, and spending, and presenting within the constraints of, resonate with, and options for development interventions. Table 2 eventually shape, the underlying political and summarizes some of the emerging key principles for institutional dynamics associated with resource- resource-dependent developing countries in these dependence. Bearing that in mind, diverse three areas, mapped against the political economy stakeholders oriented by the normative compass of settings of patrimonial rule, hegemonic government, collective welfare enhancement can successfully and clientelist pluralism—namely those characterized transform resource rents into sustainable by significant weakness in terms of intertemporal development riches. 6 Table 2: “Good Fit� Arrangements for the Extractives Sector Political Economy Setting in Typology Extraction Taxation Investment Patrimonial rule • Enclave capacity-building initiatives in key • Contract out audit capacity. • Enclave public investment capacity through (limited credibility/limited inclusiveness) agencies, emphasizing the strengthening of • Combine production-based royalties and resource-for-infrastructure deals, but promote core technical skills in contracting. Such skills windfall royalties. transparency to enhance value for money. 1. Enhance intertemporal credibility by may be contracted-in or built into partnership lengthening time horizons and reducing the • Design stability clauses with built-in regular • Stress predictability over volume for key with extractive investors. public investment creation potential that contracts or fiscal regimes will be revisions. revised. • Create simple, nondiscretionary legal and envelopes/agencies. regulatory framework. • Use third-party monitoring. 2. Support incentives to invest in institutional • Earmark investment resources on balance capacity across the value chain; facilitate the • Ensure checks and balances in decision to public asset preservation over creation, for articulation of collective action and demands making over license allocation, minimizing example, by capitalizing road funds. for good governance. discretion. • Leverage narrow and organized 3. Limit rent-seeking behavior by minimizing • Ease information asymmetries through constituencies for asset creation and points of discretion in decision-making geological surveys, model contracts, and so preservation. processes. on. • Tilt extractive industry infrastructure toward dual use and inclusivity, as feasible. Hegemonic government • Enclave capacity in key agencies. • Enclave tax administration capacity. • Proactively encourage extractive industry (greater credibility/limited inclusiveness) • Automate license allocation, minimizing • Combine production-based royalties with infrastructure to be of dual use, notably discretion. income tax and windfall royalties or sliding- through government’s strategic planning of 1. Take advantage of longer time horizons and resource corridors. the relatively more conducive environment for • Empower nonexecutive stakeholders, scale royalties; use production sharing. contracts and investment. including legislature and civil society groups, • Use stability clauses with built-in regular • Support technocratic investors to enhance with oversight powers. revisions. quality of investment spending and aligning it 2. Facilitate greater inclusiveness in decision with regime priorities for key types of making and broader benefit sharing by • Emphasize checks on executive power to infrastructure. supporting nascent civil society groups and rein in rent-seeking. Horizontal checks can be empowering nonexecutive stakeholders with built in by ensuring interagency collaboration; • Motivate greater inclusiveness of investment oversight functions. vertical checks can be instituted, for example, by recourse to state legitimacy and crowding through independent audit agencies and the in demand side, including through legal system. international benchmarking. Clientelistic pluralism • Gradually expand capacity by building • Contract out auditing in the short term and • Crowd in demand side for asset (limited credibility/greater inclusiveness) coalitions for reform and investments in gradually build audit capacity through broader preservation and selected asset creation. capacity. coalitions. • Enhance transparency with regard to asset 1. Enhance intertemporal credibility and policy stability by lengthening time horizons through • Create simple, nondiscretionary legal and • Combine production-based royalties with creation and preservation; crowd in contractual bargains. regulatory framework. income tax and windfall royalties and sliding- associated constituencies, anchored at a • Ensure checks and balances in decision scale royalties. salient subnational constituency level. 2. Build stability through sectoral institutional technologies, emphasizing the importance of making over license allocation. • Use stability clauses with built-in regular • Invest in most critical and visible links. nondiscretionary process. • Create intertemporal flexibility on the terms revisions. •Illuminate key nodes of public investment 3. Enhance broader inclusiveness by easing of the deal, including built-in regular revisions. • Ease information asymmetries and mobilize management (for example, procurement) by information asymmetries and creating greater • Ease information asymmetries through constituencies for transparency in revenue emphasizing collective checks and balances. space for collective action for good contract disclosure. collection. governance. Source: Barma et al. 2012, p. 222. Humphreys, Macartan, Jeffrey D. Sachs, and Joseph Stiglitz. 2007. Escaping the Resource Curse. New York: Columbia University Press. References Humphreys, Marcartan, and Martin E. Sandbu. 2007. ―The Political Economy of Natural Resource Funds.‖ In Escaping Ascher, William. 1999. Why Do Governments Waste Natural the Resource Curse, ed. Macartan Humphreys, Jeffrey D. Resources? Policy Failures in Developing Countries. Sachs, and Joseph Stiglitz, 194–233. New York: Columbia Washington, DC: Johns Hopkins University Press. University Press. ———. 2009. Bringing in the Future: Strategies for Kaiser, Kai, and Lorena Viñuela. 2011a. ―Investing for Extractive Farsightedness and Sustainability in Developing Countries. Rents: Global Structure, Trends and Transparency.‖ Chicago and London: University of Chicago Press. Unpublished manuscript. World Bank Public Sector Group. World Bank, Washington, DC. Brahmbhatt, Milan, and Otaviano Canuto. 2010. ‖Natural Resources and Development Strategy after the Crisis.‖ World ———. 2011b. ―Where the Extractive Rents Are?‖ Unpublished Bank PREM Note 147 (Economic Policy) (January). World manuscript. World Bank Public Sector Group. World Bank, Bank, Washington, DC. Washington, DC. Barma, Naazneen, Kai Kaiser, Tuan Minh Le, and Lorena Viñuela. Kohli, Atul. 2004. State-directed Development : Political Power 2012. Rents to Riches? Political Economy of Natural and Industrialization in the Global Periphery. Cambridge, Resource-led Development. Washington, DC: World Bank. UK, and New York: Cambridge University Press. Collier, Paul. 2009. Wars, Guns, and Votes: Democracy in Lal, Deepak, and H. Myint. 1996. The Political Economy of Dangerous Places. New York: HarperCollins. Poverty, Equity and Growth. Oxford, UK: Clarendon Press. ———. 2010. The Plundered Plant: Why We Must––and How We Mayorga Alba, Eleodoro. 2009. ―Extractive Industries Value Can––Manage Nature for Global Prosperity. Washington, Chain.‖ Africa Region Working Paper 125. World Bank, DC: Oxford University Press. Washington, DC. http://go.worldbank.org/KLQAH1H350. Collier, Paul, Frederick van der Ploeg, and Anthony J. Venables. McFerson, Hazel M.. 2010. ―Extractive Industries and African 2009 ―Managing Resource Revenues in Developing Democracy: Can the ‗Resource Curse‘ Be Exorcised?‖ Countries.‖ OxCarre Research Paper 2009-14. University of International Studies Perspectives 11 (4): 335–53. Oxford, Oxford, UK. Mehlum, Halvor, Karl Moene, and Ragnar Torvik. 2006. Crombrugghe, Denis de, Kristine Farla, Nicolas Meisel, Chris de ―Institutions and the Resource Curse.‖ The Economic Journal Neubourg, Jacques Ould Aoudia, and Adam Szirmai. 2009. 116 (508): 1–20. ―Institutional Profiles Database III: Presentation of the Olson, Mancur. 1993. ―Dictatorship, Democracy, and Institutional Profiles Database 2009 (IPD 2009).‖ Direction Development.‖ American Political Science Review 87 (3): Générale du Trésor et la Politique Economique (DGTPE), 567–76. Paris. http://www.cepii.fr/ProfilsInstitutionnelsDatabase.htm. Rajaram, Anand, Tuan Minh Le, James A. Brumby, and Nataliya Dunning, Thad. 2008. ―The Political Economy of the Resource Biletska. 2010. ―Framework for Reviewing Public Paradox: An Overview.‖ Unpublished manuscript. World Investment Efficiency.‖ World Bank Policy Working Paper Bank, Washington DC. 5397. World Bank, Washington, DC. Eifert, Benn, Alan Gelb, and Nils Borje Tallroth. 2002. ―The Rodrik, Dani. 2003. In Search of Prosperity: Analytic Narratives Political Economy of Fiscal Policy and Economic on Economic Growth. Princeton, NJ: Princeton University Management in Oil Exporting Countries.‖ In Fiscal Policy Press. and Implementation in Oil-Producing Countries, ed. Jeffrey Sachs, Jeffrey D., and Andrew M. Warner. 1995. ―Natural M. Davis, Rolando Ossowski, and Annalisa Fedelino, 80– Resource Abundance and Economic Growth.‖ NBER 122. Washington, DC: International Monetary Fund. Working Paper 5398. National Bureau of Economic Evans, Peter B. 1995. Embedded Autonomy: States and Industrial Research, Cambridge, MA. Transformation. Princeton, N.J.: Princeton University Press. ———. 2001. "The Curse of Natural Resources." European Frankel, Jeffrey A. 2010. ―The Natural Resource Curse: A Economic Review 45 (4–6): 827–38. Survey.‖ NBER Working Paper 15386. National Bureau of Sala–i–Martin, Xavier, and Arvind Subramanian. 2003. Economic Research, Cambridge, MA. ―Addressing the Natural Resource Curse: An Illustration Gelb, Alan, and Associates. 1988. ―Oil Windfalls: Blessing or from Nigeria.‖ IMF Policy Working Paper, International Curse?‖ World Bank, Washington, DC. Monetary Fund, Washington, DC. Gelb, Alan, Kai Kaiser, and Lorena Viñuela. 2011. ―How Much Vatansever, Adnan, and Alexandra Gillies. 2009. ―The Political Does Natural Resource Extraction Really Diminish National Economy of Natural Resource Management for Wealth? The Implications of Discovery.‖ Unpublished Development: A Framework for Operational Research.‖ manuscript. PREM Public Sector & Governance Group, Unpublished manuscript. World Bank, Washington, DC. Washington, DC. World Bank. 2006. Where Is the Wealth of Nations? Measuring Hamilton, Kirk, and Eduardo Ley. 2010. ―Measuring National Capital for the 21st Century. Washington, DC: World Bank. Income and Growth in Resource-Rich, Income-Poor ———. 2010. Natural Resources in Latin America and the Countries.‖PREMise Note No 28. World Bank, Washington, Caribbean: Beyond Booms and Busts? Regional Flagship DC. Study. Washington, DC.: World Bank. Hansen, Kjetl, and Ricardo Soares de Oliveira . 2009. ―Political ———. 2011. The Changing Wealth of Nations: Measuring Economy of Petroleum Management in Angola.‖ Sustainable Development for the New Millennium. Unpublished manuscript. World Bank, Washington, DC. Environment and Development Series. Washington, DC: Hartwick, John M. 1977. ―Intergeneration Equity and the Investing World Bank. of Rents for Exhaustible Resources.‖ American Economic Review 67 (5): 972–74. About the Authors distinguishes a political economy setting under a stationary bandit Naazneen Barma is Assistant Professor at the Naval (or institutionalized regime) from that under roving bandits Postgraduate School. (leaders who are unconstrained by organizational arrangements) is that the time horizons are longer in the former (see Clague et al. Kai Kaiser is Senior Economist of the East Asia 1996). The intertemporal dimension of our typology hinges on this elegant insight. The authors thank Phil Keefer for his observations Poverty Reduction and Economic Management Unit on this concept. at the World Bank. ix The degree to which the regime needs to pay off other social groups (usually with a mix of particularistic and developmental Lorena Viñuela is a Consultant at the Public Sector goods) can vary and relates to the predictability of succession and Governance Anchor at the World Bank. the potential of revolt. In Angola, for example, the ruling elite was able to enrich itself with relative inattention to broader societal demands; whereas in Suharto era Indonesia, a certain degree of broad-based growth and development was necessary to underwrite Notes the regime‘s grip on power. x The Public Policy Attributes (PPA) dataset of the Inter-American Development Bank is available at http://www.iadb.org/res/pub_desc.cfm?pub_id=DBA-008 (see also Berkman et al. 2008). This note is based on Naazneen H. Barma, Kai Kaiser, Tuan Minh The Institutional Profiles Database (IPD) developed under the Le, and Lorena Viñuela, Rents to Riches? The Political Economy auspices of the French Development Cooperation is available at of Natural Resource-Led Development (Washington DC: The http://www.cepii.fr/anglaisgraph/bdd/institutions.htm (see also World Bank, 2012). This note summarizes the key messages of the Crombrugghe et al. 2009). volume, focusing on the political economy framework developed xi therein. Programmatic pluralist settings face less constraining political i economy dynamics. Sachs and Warner (1995; 2001) are credited with a seminal empirical statement of the resource curse that demonstrates this paradoxical relationship between resource dependence (measured by the raw material export share of GDP) and growth. Subsequent cross-sectional empirical research indicates that the quality of existing institutions may be the key factor that mediates a resource- dependent country‘s economic outcomes. See, among others, Dunning (2008); Mehlum, Moene, and Torvik (2006); Sala-i- Martin and Subramanian (2003); Vatansever and Gillies (2009). ii Background notes provide a more in-depth analysis of recent extractive rents, investment, and discovery, with a special emphasis on developing countries: Gelb, Kaiser, and Viñuela 2011; Kaiser and Viñuela 2011a; b. iii See Gelb and Associates (1988) for a foundational statement. iv See Brahmbhatt and Canuto (2010) for a recent summary of major issues. Collier, van der Ploeg, and Venables (2009) and Frankel (2010) survey some of the recent work in this area, positioning findings in the context of how the literature on the resource curse has evolved over time. The World Bank (2010) provides insights concerning commodity-led development more broadly with special reference to Latin America. ―Good practice‖ approaches to better harnessing extractive resources for development include Asher (1999); Humphreys, Sachs, and Stiglitz (2007); Collier (2009; 2010); and the Natural Resource Charter (2009). v Rodrik (2003; 2007) has advocated this perspective eloquently. vi Mayorga Alba (2009) provides a complete description of the technical components embedded in the EI value chain. vii The typology presented here is adapted from foundational work by Naazneen Barma and Lorena Viñuela (Barma and Viñuela 2010). Phil Keefer provided insights into refining the typology (Keefer and Vlaicu 2007; Gehlbach and Keefer 2009; 2010). The typology particularly builds on the typological and theoretical work of Eifert, Gelb, and Tallroth (2002); Evans (1989; 1995); Kohli (2004); Lal and Myint (1996); and Olson (1993). viii Olson (1993) develops the concepts of roving and stationary bandits in articulating a theory of economic development under dictatorship and democracy. One of the key characteristics that 9