Extractive Economies, Growth, and the Poor

Abstract

There is mixed evidence regarding the relationship between the extractive intensity of economic activity and the level of human development. Some studies find that mineral- and energy-intensive economies have higher levels of development than economies without a substantial extractive sector, whereas others find that they have lower development levels. Those that find the negative relationship commonly infer that there are ongoing, dynamic effects at work, such as an erosive effect of resource wealth on institutional quality, or a structural shift that reduces manufacturing employment and, with this, manufacturing’s special development-enhancing impacts. These studies also infer that the lower development levels equate to negative impacts on the poor. Even in growing extractive economies, the poor are thought to be made worse off as a result of the extractive activities. None of these studies, however, specifically examines how growth spells in extractive economies affect the poor in those economies. This chapter examines this relationship via a simple comparison of a series of growth spells in extractive and non-extractive economies. It shows that the poor in growing extractive economies are as likely or more likely to benefit from that growth than are the poor in growing non-extractive economies. Thus, there is no evidence that positive growth in extractive economies is any worse for the poor than positive growth in non-extractive economies. What hurts the poor in any economy is negative growth, and resource extraction is bad for the poor only if it increases, for whatever reason, the frequency of negative growth in an economy.