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Article
Publication date: 20 October 2020

Mahieddine Adnan Ghecham

This study aims at increasing the authors’ understanding how and why the oil curse takes place.

Abstract

Purpose

This study aims at increasing the authors’ understanding how and why the oil curse takes place.

Design/methodology/approach

The study uses a structural equation model (SEM) and stochastic frontier analysis (SFA) in order to underline the mechanism under which the oil curse operates.

Findings

The study shows that oil abundance could lead to inefficient resource allocation. This inefficiency is strongly correlated with a weak institutional setting which would lead to accumulated external debt and ultimately to poor economic performance.

Research limitations/implications

The quality of institutions and governance plays a major role in defining government success in allocating public resources efficiently. In a weak institutional setting, characterized with lack of accountability oil rents can promote rent-seeking behavior of public agents; a type of behavior that promotes misallocation and waste of resources. This in turn undermines public finances and leads to external debt accumulation. Debt per se is not necessarily a bad thing, but it has a turning point beyond which it can be a source of economy for countries (particularly countries with limited diversified source of revenue and inefficient public sector). It is to note that the authors work does not refute the positive impact that the increase in oil value has on economic growth (e.g. Nusair, 2016). However, it reminds policy makers that in order to sustain this impact over long term, it is necessary to build a strong institutional framework that prevents inefficient use of resource allocation as it could result in rapid accumulation of debt over short period of time. The adoption of sovereign wealth funds (SWFs) by a number of oil rich countries has helped them to manage adverse oil shocks. Nonetheless, the effectiveness of these funds could be limited in a country whose institutions are not very strong. Characterized by a mediocre institutional setting, Algeria's sovereign fund, for example, has lost 67% of its reserves over just two years (2014–2015) before reaching the level zero by February 2017 following the drop of oil prices in 2015 (see Central Bank of Algeria, 2017). Also, the foreign exchange reserves of the country experienced a drop of more than 72% over a short period of time (2014–2020), leading to the resurgence of the idea of contracting external debt. Similarly, following the sharp drop in oil prices in 2015, the Saudi Arabia's external debt (% of GDP) has jumped by more than 150% over three years only, reaching a level of 28.85% in 2020 compared to a 10.62% in 2015 (https://Fred.stlouisfed.org/series/SAUDGDPGDPPT). The positive correlation of weak institutions with inefficiency can lead to fiscal policy procyclicality. Inefficient public spending tends to be procyclical compared to productive public spending (Makin, 2014). This procyclicality is apparent in developing countries, particularly those characterized by corrupted and weak institutional environment (Alesina et al., 2008; Frankel et al., 2013). This is conducive to output fluctuations where booms and busts are exacerbated (Frankel et al., 2013).

Originality/value

Originality of the study resides in the idea that external debt is an important element that could help to explain why oil curse could take place. The transmission mechanism that underpins the oil curse hypothesis is yet to be fully understood. In doing so, the paper, with the use of two sophisticated statistical techniques, reconciles between the concept of debt overhang and oil curse hypothesis. Similar research efforts are scant.

Details

Journal of Economic Studies, vol. 48 no. 4
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 1 December 2002

Milorad M. Novicevic, Michael Harvey, Niranjan Pati, Thomas Kuffel and Thomas Hench

This paper examines the limits of pragmatism in strategy formulation in the new, knowledge‐rich economy. By tracing the history of pragmatism in social and management…

Abstract

This paper examines the limits of pragmatism in strategy formulation in the new, knowledge‐rich economy. By tracing the history of pragmatism in social and management thought, and assessing the commonalties and complementarities between a firm’s vision and mission, we explore the possibility and consequences of an intangible resource curse for firms pursuing strategies of incessant pragmatic growth in the expanding Web‐based domain. Ultimately, we posit a combined influence of market‐based governance and strategy simplification as an effective antidote to the executive intangible resource binging, which is sustainable as long as confidence and trust continue to be shared among the firm stakeholders.

Details

Journal of Intellectual Capital, vol. 3 no. 4
Type: Research Article
ISSN: 1469-1930

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Article
Publication date: 10 June 2014

Quan Hoang Vuong and Nancy K. Napier

The purpose of this paper is to explore the “resource curse” problem as a counter-example of creative performance and innovation by examining reliance on capital and…

Abstract

Purpose

The purpose of this paper is to explore the “resource curse” problem as a counter-example of creative performance and innovation by examining reliance on capital and physical resources, showing the gap between expectations and ex-post actual performance that became clearer under conditions of economic turmoil.

Design/methodology/approach

The analysis uses logistic regressions with dichotomous response and predictor variables on structured tables of count data, representing firm performance as an outcome of capital resources, physical resources and innovation where appropriate.

Findings

Key findings relevant to economic and business practice follow. First, a typical characteristic of successful Vietnamese firms in the transition period is their reliance on either capital resources or physical asset endowments. Second, poor performers exhibit evidence of over-reliance on both capital and physical assets. Third, firms that relied on both types of resources tended to downplay creative performance. Some evidence suggests that firms face more acute problem caused by the law of diminishing returns in troubled times. Fourth, the “innovation factor” has not been tapped as a source of economic growth.

Research limitations/implications

This study has some limitations. The size of the survey sample is approximately 150 firms, while the potential sample of > 300 should be possible in the future. When the size increases, the research could be expanded to include further variables that will help investigate more deeply into the related issues and business implications. With regard to the implications of the study, the absence of innovations has made the notion of “resource curse” identical to “destructive creation” implemented by ex-ante resource-rich firms, and worsened the problem of resource misallocation in transition turmoil. The Vietnamese corporate sector's addiction to resources may contribute to economic deterioration, through a downward spiral of lower efficiency leading to consumption of more resources.

Practical implications

Insights obtained from this study could save transition economies' resources which have almost always been considered sine qua non before any critical major policymaking, while this is not necessarily true, and in many cases, even counterproductive.

Originality/value

Original data set on Vietnam stock market are collected, processed, prepared and used by the authors. Original design by the authors for regression equations with dichotomous predictor variables: dependence on endowed physical assets, reliance on capital resources and significant signs of creative performance/innovations. Original idea of viewing “resource curse” as absence of innovation and due to uncreative “destructive creation” of poor-performing commercial operations by resource-rich firms is used in the paper. We have searched the literature in business research and found that the empirical results have not been previously reported.

Details

Management Research Review, vol. 37 no. 7
Type: Research Article
ISSN: 2040-8269

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Article
Publication date: 22 June 2010

David Pick and Htwe Htwe Thein

The aim of this paper is to examine development failure in Myanmar and explore alternative ways forward.

Abstract

Purpose

The aim of this paper is to examine development failure in Myanmar and explore alternative ways forward.

Design/methodology/approach

This research uses a variety of quantitative and qualitative data drawn from sources including newspaper and media accounts from inside and outside Myanmar, reports from NGOs and field observations. The data are analysed using a framework developed by combining the theoretical perspectives of the resource curse and governmentality.

Findings

Evidence of developmental failure in Myanmar is found. The nation is in an economic, social and political mess due to the actions of an incompetent and corrupt robber regime that has misused and misappropriated much of the wealth being produced from the nation's large mineral and energy reserves. Action by the international community has so far proved ineffective in improving the situation.

Research limitations/implications

The main limitation of this paper is the difficulty in obtaining accurate and reliable official economic and social indicators. However, it does illustrate the value of combining the resource curse thesis and governmentality for understanding development failure.

Practical implications

This research has practical implications in that by illustrating the unsustainable nature of the “grabber governmentality” and providing an alternative “producer governmentality” it is clear that even the most authoritarian regimes are susceptible to change.

Originality/value

The resource curse thesis and governmentality have so far not been used together in the analysis of development. In this paper these concepts provide a way to critically examine the association between resource richness, poor governance and development failure.

Details

International Journal of Sociology and Social Policy, vol. 30 no. 5/6
Type: Research Article
ISSN: 0144-333X

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Article
Publication date: 2 September 2014

Kwasi Dartey-Baah, Kwesi Amponsah-Tawiah and David Aratuo

The paper aims to assess the institutional readiness of Ghana prior to and after the production of her first oil. The paper also assesses the influence of politics in…

Abstract

Purpose

The paper aims to assess the institutional readiness of Ghana prior to and after the production of her first oil. The paper also assesses the influence of politics in directing the appropriate use of the oil rents in facilitating the developmental needs of the country.

Design/methodology/approach

The paper uses a literature review of the main theories regarding national politics and institutional policies in explaining the economic demise of a country due to a natural resource find. It also uses the natural resource find in Norway as a case study, drawing lessons from the effectiveness of Norway’s institutional policies in harnessing maximum benefits from their oil find and how developing nations such as Ghana can do same.

Findings

The paper establishes that Ghana’s institutional architecture as regards the production of oil and gas is fraught with inadequacies on all fronts as regards regulations, regulators and the needed logistics. Additionally, the paper also highlights the role of Ghana’s political elite in perpetuating these institutional inadequacies.

Originality/value

The paper highlights the insufficiencies in the institutional readiness for Ghana’s oil find and brings to the fore the influence of Ghana’s politics in contributing to these inadequacies.

Details

International Journal of Law and Management, vol. 56 no. 5
Type: Research Article
ISSN: 1754-243X

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Article
Publication date: 31 July 2017

Ishmael Ackah

A widely held belief before the 1990s – referred to as the oil-blessing hypothesis – was that oil discovery and production should promote economic growth and development…

Abstract

Purpose

A widely held belief before the 1990s – referred to as the oil-blessing hypothesis – was that oil discovery and production should promote economic growth and development and lead to poverty reduction. However, the so-called ‘oil-curse’ hypothesis, postulated by Sachs and Warner in 1995, challenged this belief, thus provoking a heated debate on the theme. The oil-curse hypothesis has been traditionally tested by means of cross-sectional and panel-data models. The author goes beyond these traditional methods to test whether the presence of spatial effects can alter the hypothesis in oil-producing African countries. In particular, this paper aims to investigate the effects on economic growth of oil production, oil resources and oil revenues along with the quality of democratic institutions, investment and openness to trade.

Design/methodology/approach

A Durbin spatial model, a cross-sectional model and panel-data model are used.

Findings

First, the validity of the spatial Durbin model is vindicated. Second, consistently with the oil-curse hypothesis, oil production, resources, rent and revenues have a negative and generally significant effect on economic growth. This result is robust for across the panel data, spatial Durbin and spatial autoregressive models and for different measures of spatial proximity between countries. Third, the author finds that the extent to which the business environment is perceived as benign for investment has a positive and marginally effect on economic growth. Additionally, economic growth of a country is further stimulated by a spatial proximity of a neighbouring country if the neighbouring country has created strong institutions protecting investments. Fourth, openness to international trade has a positive and marginally significant effect on economic growth.

Originality/value

This paper examines theories and studies that have been done before. However, as the related literature on the growth–resource abundance nexus has rarely examined spatial effects, this study seeks to test jointly the spatial effect and the neighbouring effect on the oil curse hypothesis.

Details

International Journal of Energy Sector Management, vol. 11 no. 3
Type: Research Article
ISSN: 1750-6220

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Article
Publication date: 14 December 2020

Tania El Kallab and Cristina Terra

This paper explores the role of colonial heritage on long-term economic development from a resource-curse perspective. The authors investigate the impact of colonial…

Abstract

Purpose

This paper explores the role of colonial heritage on long-term economic development from a resource-curse perspective. The authors investigate the impact of colonial exports on long-term economic development through two channels: (1) a direct impact of the economic dependency on natural resources and (2) an indirect impact via its effect on colonial institutions, which persisted over time and influenced current economic development.

Design/methodology/approach

To address this issue, the authors use an original data set on French bilateral trade from 1880 to 1912. The authors use partial least square structural equation modeling (PLS-SEM) in the empirical analysis, so that the authors are able to construct latent variables (LVs) for variables that are not directly observable, such as the quality of institutions.

Findings

The authors find that exports of primary goods to France had a negative impact on colonial institutions and that for French colonies, this impact was driven by minerals exports. Despite its impact on colonial institutions, exports of French colonies had no significant indirect impact on their current institutions. The authors find no significant direct impact of colonial trade on current development for French colonies. Finally, colonial exports of manufactured products had no significant impact on colonial institutions among French colonies and a positive impact among non-French ones.

Research limitations/implications

Research implications regarding the findings of this paper are, namely, that the relative poor performance within French colonies today cannot be attributed to the extraction of raw materials a century ago. However, human capital and institutional development, instead of exports, are more relatively important for long-term growth. Some limitations in trying to determine the simultaneous relationship among colonial trade, institutions and economic performance are the relation between colonial trade and the extent of extraction from the colonizer, which is hard to quantify, as well as its precise mechanism.

Practical implications

Since the initial institutions set in those former colonies presented a strong persistence in the long run, their governments should focus now on building sound and inclusive political and economic institutions, as well as on investing in human capital in order to foster long-term growth. Once a comprehensive set of institutional and human resources are put in place, the quality and quantity of exports might create a positive spillover on the short-run growth.

Social implications

One social implication that can be retrieved from this study is the ever-lasting effect of both human capital investment and introduction of inclusive political and economic institutions on the long-run impact of growth.

Originality/value

The paper uses an original primary data set from archival sources to explore the role of colonial heritage on long-term economic development from a resource-curse perspective. It applies a relatively new model partial least squares path modeling (PLS-PM) that allows the construction of LVs for variables that are not directly observable, as well as channeling the impact on growth through both direct and indirect channels. Finally, it allows for the simultaneous multigroup analysis across different colonial groups.

Details

Journal of Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 4 March 2014

Elissaios Papyrakis

The paper aims to examine the coexistence of formal and informal resource sectors in resource-dependent economies, whose production depends on an exhaustible (e.g…

Abstract

Purpose

The paper aims to examine the coexistence of formal and informal resource sectors in resource-dependent economies, whose production depends on an exhaustible (e.g. minerals) and a renewable resource stock (e.g. forest), respectively. It then examines the implications of declining mineral stocks on public revenues, labour movements between sectors, and economic growth in an attempt to elucidate the poor economic performance of many mineral-dependent countries.

Design/methodology/approach

The paper presents a theoretical model that describes the coexistence of a formal and informal resource-dependent sector, where individuals can direct their work effort. It then assesses how declining mineral stocks influence labour mobility across sectors and environmental degradation.

Findings

Decreasing mineral stocks induce a relocation of labour towards informal production and deprive local authorities from public revenues collected within the formal economy. This constrains the ability to improve infrastructure and welfare over time and simultaneously imposes pressure on the local environment.

Originality/value

The paper provides a novel theoretical mechanism that attempts to elucidate the “resource curse”, i.e. the poor economic performance of many mineral-rich economies. It purposely explores the implications of a coexistence of formal and informal resource activities on economic development for resource-dependent economies, in order to obtain new insights into this direction.

Details

International Journal of Social Economics, vol. 41 no. 3
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 24 October 2008

David Pick, Kandy Dayaram and Bella Butler

This paper aims to present the case of the Pilbara as an illustration of how neo‐liberalism and globalisation affect a natural resource region.

Abstract

Purpose

This paper aims to present the case of the Pilbara as an illustration of how neo‐liberalism and globalisation affect a natural resource region.

Design/methodology/approach

A primary data set was collected by interviewing 21 people who had an interest in the development of the Pilbara. Secondary data was collected from relevant government policy documents and media reports relating to the region. Qualitative analysis techniques were used to analyse the data.

Findings

It is found that neo‐liberal policy has had a profound and largely negative effect on Pilbara communities. Rather than reaping the benefits of the wealth being generated in the region, participants in this research experience social breakdown and unmet social needs, and the local democratic institutions are weak and ineffective. Research limitations/implications – This paper reports on a single case and is limited in terms of its generalisability. However, it does illustrate the value of the “Resource Curse Thesis” and the concept of “risk” in illuminating the issues associated with neo‐liberalism.

Practical implications

This research has practical implications in that it provides an example of the problems associated with neo‐liberal perspectives when they are used as a framework for developing and implementing regional policy.

Originality/value

The resource curse thesis tends to be used in analysing developing nations and risk has so far been applied in limited areas of researching the effects of neo‐liberal policy trajectories. This paper employs these concepts to provide a critical examination of regional development policy in a way that can be used in other national contexts.

Details

International Journal of Sociology and Social Policy, vol. 28 no. 11/12
Type: Research Article
ISSN: 0144-333X

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Article
Publication date: 28 May 2021

Hamid Kordbacheh and Seyedeh Zahra Sadati

The natural resources curse theory argues the higher dependency on natural resources leads to many socio-economic problems. The purpose of this study is to examine the…

Abstract

Purpose

The natural resources curse theory argues the higher dependency on natural resources leads to many socio-economic problems. The purpose of this study is to examine the relationship between corruption and banking soundness and also to compare the extent of this effect between the two groups of rich and poor in natural resources countries.

Design/methodology/approach

To this aim, the authors apply a panel data set comprised of 98 countries from 2012 to 2015.

Findings

The results show that nations with a higher level of corruption have poorer banking soundness. The authors also find that by considering the resource curse theory and the effect of natural resource rents in the model, the adverse impact of corruption on banking soundness is more substantial in countries with a higher natural dependency level (rich in natural resources).

Originality/value

Though studies have been conducted on corruption and banking soundness, this paper, by using resources curse theory, articulates that corruption is one of the most critical factors affecting banking soundness and has a destructive effect on the health of the banking system and the economy of almost all countries, especially in natural resource-based economies. This study will appeal to banks authorities, governments, policymakers, oversight financial institutions and those who have a vested interest in regulating financial crimes globally. They can prevent financial and banking crises by cooperating in the fight against corruption worldwide.

Details

Journal of Financial Crime, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1359-0790

Keywords

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