Overcoming the Resource Curse in African States: Examining the Effectiveness of the Developmental State Framework on Economic Development in Resource-Rich African Countries Jody-Ann Jones

Outline of Presentation Introduction Context Research Problem ▫ Botswana: An African Developmental State Research Question Research Argument Research Design Core Elements of the Developmental State (Leftwich) Core Elements of the Botswana Developmental State (Acemoglu, Johnson and Robinson) Operationalizing the Core Elements of the Developmental State Measurement Issues Model One’s Hypotheses Model Two’s Hypotheses Methodology Model One’s Findings Model Two’s Findings Implications of the Study Conclusion

Introduction: Resource Abundance in Africa Source: U.S. Geological Survey, "2009 Minerals Yearbook: Africa," U.S. Department of the Interior (September 2011).

Context The Resource Curse thesis (Sachs and Warner, 1999; Ross, 1999; Auty, 2001; Humphreys, Sachs and Stiglitz, 2007): ▫ The abundance in natural resources is inversely correlated with economic development because of several factors:  Dutch Disease  Vulnerability to Market Price Volatility  Rent-Seeking

Research Problem

Botswana: A Developmental State What is a developmental state? ▫ Adrian Leftwich describes the developmental state as “those states whose politics have concentrated sufficient power, autonomy, capacity and legitimacy at the center to shape, pursue, and encourage the achievement of explicit developmental objectives” (Leftwich, 2000).

Research Question To what extent does the developmental state framework mitigate the resource curse, and hence improve economic development in resource-rich African states?

Research Argument I argue that it is not the abundance of natural resources that causes low development, but rather it is the absence of key aspects of the developmental state model. Conversely, the presence of elements of the developmental state model in resource-rich African countries should be associated with higher levels of economic development as illustrated in Botswana.

Research Design In order to assess the efficacy of the developmental state framework, I empirically test the effects of the operationalized concepts from the developmental state literature on economic development (measured by GDP per capita) In terms of African developmental states, two seminal texts are Adrian Leftwich’s States of Development and Acemoglu, Johnson and Robinson’s article “An African Success Story: Botswana.”

The Developmental State (Leftwich) Developmental Elite Relative State Autonomy Bureaucratic Power Weak Civil Society Strong Capacity in Managing State’s Economic Interests Weak Human Rights Legitimacy i.e. Widespread Support for the Regime in Power Core Elements of

Core Elements of the Botswana Developmental State (Acemoglu et. al) Basic system of law and contract Limitation of state and private predation Relatively noncorrupt bureaucracy Government investment in infrastructure and public goods Prudent fiscal policy Strong private property institutions

Operationalizing the Core Elements of “The Developmental State” Model One (Leftwich)Model Two (Acemoglu et. al) Developmental Elite  Transparency International’s Corruption Perceptions Index Law and Contract  African Development Indicators 'Time Required to Enforce a Contract Relative State Autonomy  Polity IV’s Polity Limitation of State Predation  Polity IV’s Executive Constraint Bureaucratic Power  African Development Indicators’ Government Effectiveness Relatively Noncorrupt Bureaucracy  Transparency International’s Corruption Perceptions Index Influence and Capacity to Manage Economic Interests  World Bank’s Doing Business Index Investment in Public Goods  African Development Indicators’ Education Spending as a percentage of Government Expenditure and Health Spending as a percentage of Government Expenditure Weak Human Rights  African Development Indicators’ Participation and Human Rights Prudent Fiscal Policy  African Development Indicators’ Fiscal Balance State Legitimacy  Polity IV’s Durable Strong Private Property Institutions  African Development Indicators’ Time Required to Register Private Property

Measurement Issues In order to measure the strength of the civil society, I use the GINI Index of Inequality. However, because of the lack of sufficient data coverage for this variable, it was omitted from the data analysis.

Model One’s Hypotheses H 1: States that score higher on the corruption perception index should be associated with higher levels of development. I predict a positive relationship between CPI and GDP per capita. H 2: States that exercise greater autonomy from interest groups should be associated with a higher level of development. I predict a negative relationship between POLITY and GDP per capita. H 3: States that exercise greater bureaucratic power, should be associated with a higher level of development. I predict a positive relationship between government effectiveness and GDP per capita. H 4: States that exercise a greater capacity to manage their economic interests should be associated with a higher level of development. I predict a negative relationship between the doing business index and GDP per capita. H 5: States that score lower on the participation and human rights index should be associated with a higher level of development. I predict a negative relationship between participation and human rights and GDP per capita. H 6: States with longer regime durability should be associated with a higher level of development. I predict a positive relationship between regime durability and GDP per capita.

Model Two’s Hypotheses H 1: States that require less time (or less calendar days) to enforce contractual obligations should be associated with a higher level of development. I predict a negative relationship between the time required to enforce a contract and economic GDP per capita. H 2: States with a higher degree of executive constraint should be associated with a higher level of development. I predict that there is a positive relationship between executive constraint and GDP per capita. H 3: States that score higher on the corruption perception index should be associated with higher levels of development. I predict a positive relationship between CPI and GDP per capita. H 4a: States that spend more on education as a percentage of their government expenditure should be associated with a higher level of economic development. ▫ H 4b : States that spend more on health as a percentage of their government expenditure should be associated with a higher level of economic development. I expect a positive relationship between the public goods variables and GDP per capita. H 5: States that maintain a higher fiscal balance should be associated with a higher level of economic development. I predict a positive relationship between fiscal balance and GDP per capita. H 6: States that require less time to register private property should be associated with a higher level of development. Thus, I predict a negative relationship between the time required to register private property and GDP per capita.

Methodology In order to test these hypotheses, I analyze two time-series cross-sectional multiple regression models for the period based on data collected from the World Bank’s African Development Indicators, Doing Business Index, Transparency International Corruption Perceptions Index, and the Polity IV Project.

Model One’s Findings Table 1: Model One's Coefficients Model Unstandardized Coefficients Standardized Coefficients tSig. BStd. ErrorBeta 1 (Constant) Resource Abundant Dummy Corruption Perceptions Index (score) Revised Combined Polity Score Government Effectiveness (estimate) Ease of doing business index (1=most business- friendly regulations) Participation and Human Rights Regime Durability a. Dependent Variable: GDP per capita (current US$)

Model Two’s Findings Table 2: Model Two’s Coefficients Model Unstandardized Coefficients Standardized Coefficients tSig. BStd. ErrorBeta 2 (Constant) Resource Abundant Dummy Time required to enforce a contract (days) Executive Constraints Corruption Perceptions Index (score) Public spending on education, total (% of government expenditure) Health expenditure, public (% of government expenditure) Fiscal balance, cash surplus/deficit (current US$) Time required to register property (days) a. Dependent Variable: GDP per capita (current US$)

Implications of the Study In order to better understand the economic dynamics of resource-rich African countries, we need to look at three important dimensions: ▫ Corruption ▫ Regime Legitimacy and Stability ▫ Private Property Institutions

Conclusion This study’s empirical evidence supports its research argument that not all African countries encounter the resource curse. The resource curse thesis states that countries which are highly endowed with natural resources tend to experience lower economic growth and subsequently lower economic development. However, the statistical results from the models tell us that the resource-rich African countries that experience relatively higher levels of development incorporate elements of the developmental state framework to some extent. Botswana has utilized this framework to some degree and has had remarkable economic success. Possibly, a solution to the resource curse in other resource-rich African states is to adopt the key elements of the developmental state framework based on this study’s findings: 1) decrease the incidents of public sector corruption, 2) improve the legitimacy and stability of their regimes, and 3) enhance their private property institutions.