The political economy of growth collapses in mineral economies

Abstract

Rents form a relatively high share of GDP in developing countries (from 15-50%), so that differences in the scale of the rent and in its distribution among economic agents profoundly affect the evolution of the political economy. This paper deploys two rent-driven political economy models to analyse the performance of four oil-exporting countries (Angola, Venezuela, Indonesia and Algeria). The low-rent model provides a counter-factual for the high-rent model, which typifies most oil-exporters. The low-rent model sustains rapid per capita GDP (PCGDP) growth that brings endogenous democratisation, which is incremental. In contrast, high-rent countries tend to deploy the rent in ways that lock the economy into a staple trap, which aborts competitive economic diversification and represses sanctions against anti-social governance. These adverse staple trap features are heightened in oil-exporting countries because they tend to have very high natural resource rent, which is easily extracted by governments. However, a growth collapse may abruptly trigger political and economic reform if exogenous factors are favourable. This paper applies the models to explain the disappointing oil-driven development in Angola and Venezuela, and also the apparent anomaly of Indonesian development during 1966-96. It concludes by outlining with reference to Algeria a dual track strategy to circumvent the political obstacles that prevent reform in a rent-distorted political economy.