Curse Effect Research Articles

Corporate innovation and political connections in Chinese listed firms

This paper examines the relationship between political connections and corporate innovation in China. We find that political connections hinder corporate innovation activities and reduce innovation efficiency, suggesting the existence of political resource curse effect on corporate innovation in Chinese firms. In addition, we find that political connections reduce market competition and increase firms' overinvestments, leading to the crowding out effect with the limited resources insufficiently and inefficiently allocated to corporate innovation in firms. We also find that political connections weaken the impact of corporate innovation on firm future performance. Nonpolitically connected firms with patent applications have better and more effective future business performance than politically connected firms. This study provides policy implications for policy makers to reduce government-led resource allocation, improve market-oriented innovation mechanism, and standardize government subsidies to make the allocation process more transparent, so that corporate technological innovation can lead to the regional and national economic growth.

Turning resource curse into development dividends in Guinea-Bissau

This paper explores the potential risks related to the resource curse for Guinea-Bissau. To date, the country is not yet a producer of extractive resources, but its potential is high and investments are materialising. Cognisant of this, the authorities set mining/extractive industries as a core tenet of the national strategic and operational plan laid out in 2015. Risks analysed in this paper relate on the one hand to potential resource curse effects (e.g., enclave and Dutch disease), and on the other to the challenge of public financial management (PFM) and transformation of revenue into investments. Using a governance and PFM prism as analysis framework, the paper finds gaps between the de jure and de facto governance framework related to extractives. Stemming from this, policy responses are looked at including key reforms in anticipation of extractive revenues such as strengthening of PFM systems and the budget process in particular, and investing in transparency through avenues combining bottom-up (e.g., local civil society) and top-down (e.g., international compacts) approaches. Steps aiming at welcoming international transparency regulation or developing realistic local content policies are also proposed.

The resource curse without natural resources: Expectations of resource booms and their impact

Many resource-rich countries have experienced a range of negative economic and political effects from natural resource extraction, often lumped together as the ‘resource curse’. This article investigates to what extent expectations of future natural resource booms in Sao Tome e Principe and Madagascar led to ‘resource curse’ effects, even though these countries did not experience the expected booms. It finds that both countries experienced resource curse effects as a result of future expectations, including volatile economic growth and eroded governance. The article demonstrates that shared aspirations and expectations alone may make for material political and economic outcomes even when they become visibly divorced from reality. Thus, there is much more to resource curse effects than simply the product of the material extraction of natural endowments. At a time of extremely volatile prices for primary commodities, and the relatively easy availability of investment capital and credit to support speculative ventures that in turn incentivize resource hype, it is likely that a growing number of countries may suffer the malign effects of a resource curse without natural resource extraction.

IPO market cycles and expansion curse: Evidence from Chinese IPO market

ABSTRACTThere are two theories on the relationship between primary and secondary markets for securities. The first states that the expansion of IPO financing leads to a decline in stock prices, i.e. an expansion curse effect. The other states that the stock index cycle leads to a corresponding periodic change in the amount of IPO financing, i.e. the IPO market cycle theory. This paper studies the relationship between the security issuing market and the trading market in China. On the aspect of the impact of the primary market on the secondary market, an expansion curse exists in bear markets but is not significant in bull markets. On the aspect of the impact of the secondary market on the primary market, such impact exists in bull markets but is not significant in bear markets. The results provide an explanation for phenomena such as ‘short bull markets and long bear markets’, and excessive price fluctuations in Chinese security markets.

Perceiving Prospects Properly

When an agent chooses between prospects, noise in information processing generates an effect akin to the winner's curse. Statistically unbiased perception systematically overvalues the chosen action because it fails to account for the possibility that noise is responsible for making the preferred action appear to be optimal. The optimal perception pattern exhibits a key feature of prospect theory, namely, overweighting of small probability events (and corresponding underweighting of high probability events). This bias arises to correct for the winner's curse effect. (JEL D11, D81, D82, D83)

Natural resources: A curse on education spending?

In line with the rising interest in harnessing natural resource revenues for economic and human development through productive government investments, this paper aims to address an important blind spot in our understanding of the “resource curse” by contributing innovative insights on how natural resource wealth impacts government priorities and expenditure practices. Using a large panel dataset of 140 countries covering the period from 1995 to 2009, we find an adverse effect of resource dependence on public education expenditures relative to GDP that is robust to controlling for a range of additional covariates. Furthermore, our findings indicate that this resource curse effect on the government prioritization of education mainly stems from point-source natural resources. These results are of particular importance for the sustainable management of natural resource wealth in developing countries, as they could achieve especially high returns by investing resource revenues in public goods such as education. While this paper underlines the importance of institutions and government accountability, our findings also raise questions on the role of the private sector as a partner in development, as the extractives industry could consider increasing funding for education through Corporate Social Responsibility (CSR) initiatives.

The Size of the Affiliation Effect

The objective of this paper is to investigate whether the affiliation effect is of only marginal importance or it is of the same order of magnitude as the winner's curse and competition effects. This paper is an application of Pinkse and Tan in which they show that bids can be decreasing in the number of bidders in private value auctions provided that the bidders' private values are affiliated. They argue that the affiliation effect is also present in common value auctions. If the affiliation effect is substantial then a regression of bids on the number of bidders will not help in distinguishing between the common and private value paradigms. We use the Offshore Continental Shelf auction data-set to estimate these effects and find that the affiliation effect is smaller than the other two effects in terms of size. Therefore, at least in this application it appears unlikely that the affiliation effect would often offset the competition effect.

A study of resource curse effect of Chinese provinces based on Human Developing Index

Traditional opinion considers that natural resources play an important positive role in economic development, while resource curse theory holds that natural resources usually obstruct economic increase. This debate needs further exploration. In most of empirical studies on resource curse theory, the economic development of an area is mainly evaluated by the Gross Domestic Product (GDP), however, the social and cultural contents of economic development are seldom considered. Thus, the Human Developing Index (HDI) was chosen to describe the comprehensive developing situation of an area in our study. Based on the panel data from the year of 2000 to 2011, the relationship between Human Developing Index and resource exploitation degree (RED) of 30 provinces in China (Tibet, Taiwan, Hong Kong and Macao were not included because of the restriction of data acquisition) was investigated by correlation coefficient analysis and regression analysis. We found that resource curse did exist over the entire country and its effect on 30 provinces were not exactly the same. According to the effects of resource curse, these provinces could be classified into four types: no resource curse provinces, slight resource curse provinces, severe resource curse provinces, and extreme resource curse provinces. Testing from two short time periods 2000–2005, and 2006–2011, the resource curse effect was not prominent. However, testing from the entire period of 2000–2011, the effect was obvious among each province.

China's Economic Influence in Latin America

After decades of low‐level commercial interaction, China and Latin America significantly ramped up their economic relationship in the 2000s. China has jumped to first place as an export destination for many countries, and it is a major source of imports for all countries in the Latin America/Caribbean region. While not a major source of foreign direct investment overall, China has built a strong investment presence in certain countries, particularly in the natural resource and infrastructure sectors. China's influence in Latin America has presented a great opportunity for many countries, but it has also brought new risks. Three main challenges face the region: how to mitigate the impacts of increased commodity concentration as a result of China's strong demand for natural resources; how to avoid other natural resource curse effects; and how to manage the tapering of this growth. Latin American countries' relationships with China vary widely, so there is no single, coordinated regional response.

English

The productivity slump in the 2000 decade whilst Australia was riding on the biggest mining boom in its history posed a conundrum. The mining boom caused a real exchange rate appreciated due to the skyrocketing terms of trade fuelled by demand for minerals from the mega-Asian economies. The exchange rate appreciation has led to deindustrialisation and Dutch Disease effects making traditional exports internationally uncompetitive. The paper grasps the nettle of designing monetary policies to prevent the resource boom from turning to a resource curse. A New Keynesian Phillips Curve with time-varying NAIRU augmented by tradeoffs between productivity and wage aspirations is empirically validated using State Space methodology and the Kalman Filter to shed light on the policy challenges ahead. It is contended that RBA’s use of Taylor type policy rules to target inflation because of its procyclicality exacerbated deindustrialisation and Dutch Disease effects. Therefore, the feasibility of alternative adjustment policies such as Sovereign Wealth Fund (SWF), Foreign Exchange Market Intervention, Structural Budget Rules and Protectionist Policies that safeguard learning-by-doing effects and dynamic economies of scale and reform of Industrial Relations should be reviewed to combat the emergence of irreversible resource curse effects.

DISCOUNT RATE DISTORTIONS AND THE RESOURCE CURSE

AbstractEmpirical evidence has suggested a “resource curse” exists, in which countries with abundant resources may have higher initial consumption but then grow more slowly. The effect appears to be dependent on a country's political structure. Theoretical models not typically accounted for historical exceptions, or have not shown the effect exists in a dynamic growth setting. We derive the resource curse effect in an optimal growth model augmented with a political process. The economy has a finite nonrenewable resource, and the government planner can choose to over‐extract natural resources relative to the efficient path by distorting the discount rate, but in so doing incurs political costs that depend on the presence of democracy. Government planners in non‐democratic countries usually have more autonomy in policymaking than those in democratic countries; therefore, the political cost is lower for non‐democratic countries. We show that the incentive for the planner to distort the extraction path is larger, the higher is the initial resource endowment. Consistent with empirical evidence, the distortion raises short‐term consumption but lowers the long‐term growth rate, and institutional differences create corner solutions that explain why some resource‐abundant countries avoid the curse. These results are robust to the inclusion of autonomous technological change.

Natural Resource Curse, Total Factor Productivity and Regional Disparity in China: Based on Dynamic Panel Data Model Analysis

There has been the long debate over the relation between natural resource abundance and economic growth. Since the hypothesis of “natural resource curse” advanced by Gelb (1988) and Auty (1994), many scholars have concentrated on the topic, but no agreement has yet been achieved. This paper makes use of panel datasets of China’s 30 provinces from 1998 to 2009, and GMM method of dynamic panel data model, to calculate the Malmquist index of total factor productivity (TFP), test the natural resource curse hypothesis, and estimate the natural resource consumption equation. Firstly, the TFP index shows that China’s high economic growth is less efficient, and interior provinces have large disparities. Moreover, estimation results of capital and labor equations show that, for the whole country, the natural resource sector’s investment and employment promote GDP growth, so no natural resource curse exists in China. But integral three regions show different situation. The eastern region has been constrained by the resource curse effect since 2007, although the middle and west are not troubled by this due to their lower resource consumption. In addition, the natural resource consumption equation indicates that TFP has significantly negative impact on natural resource consumption for the whole country. The three regions’ TFP are all negatively correlated with resource consumption, owing to fast technological progress in resource exploitation and utilization during these years. Based on these findings, the paper reckons that if TFP rise can reduce natural resource consumption remarkably, the country or the region can eliminate the resource curse effect; or else, it has to suffer negative impact of excessive resource reliance. Finally, it makes some policy recommendations.

An Andean Avatar: Post-Neoliberal and Neoliberal Strategies for Securing the Unobtainable

Recent years have seen increasingly aggressive expansion of extractive industry in the Andean-Amazonian region. Reminiscent of the film Avatar, this expansion drives conflicts over land, territory and political control of space. This expansion is occurring in both overtly neoliberal regimes and in self-consciously post-neoliberal ones. This essay documents the convergence among the different regimes' ways of governing extraction and socio-environmental conflicts. We draw on Executive level statements and policy positions as well as on statements by indigenous peoples' organisations. Among the reasons for this apparent convergence are: long-standing resource curse effects; the need to generate resources to finance social policy instruments that are integral to the governments' overall political strategies; power and information asymmetries among companies and governments; and international relations. The convergences among Bolivia, Ecuador and Peru regarding the governance of extraction and the conflicts that it catalyses suggests the need for great critical caution before using the terminology of post-neoliberalism.

Ghana: Will it Be Gifted or Will it Be Cursed?

Will Ghana’s oil production from 2011 accelerate progress toward middle-income status, or will it retard gains in living standards through a possible curse? This paper examines the likelihood of curse effects, drawing on a dataset of 150 low and middle income countries from 1973 to 2008 using static and dynamic panel estimation techniques. Results confirm that resource rich countries in Ghana’s income range do experience slower growth than their more diversified peers, an effect that appears to be related to weaker governance. Provided that Ghana can preserve and improve its economic governance and also strengthen fiscal management, prospects look good for converting its oil wealth into sustained strong economic growth.

Dutch Disease, Factor Mobility, and the Alberta Effect - The Case of Federations

Do reduced costs of factor mobility mitigate Dutch Disease effects, to the extent that they are reversed? The case of federations provides an indication they do. We observe Resource Blessing effects at the federal-state level (within federations) yet rather Resource Curse ones at the federal level (between federations), and argue the difference in outcomes stems from the difference in factor mobility costs. Through a two-region tax competition model we show that with sufficiently low factor mobility costs a resource-boom triggers an Alberta Effect – where resource abundant regions exploit the fiscal advantage, provided by resource rents, to compete more aggressively in the inter-regional competition over capital, and as a result attract vast amounts of capital – that mitigates, and possibly reverses, Dutch Disease symptoms, so that Resource Curse effects do not apply. Thus, this paper emphasizes the significance of the mitigating role of factor mobility in Dutch Disease theory, and presents a novel mechanism (Alberta Effect) through which this mitigation, and possible reversion, process occurs. The paper concludes with empirical evidence for the main implications of the model.

Introducing mother’s curse: low male fertility associated with an imported mtDNA haplotype in a captive colony of brown hares

Mitochondrial DNA mutations create variation in the efficiency of the oxidative phosphorylation pathway and therefore cellular energy production. Mildly deleterious mutations may reduce the performance of sperm cells in particular, due to their high energy requirements and low number of mitochondria, yet have little or no effect on the viability of somatic cells or ova. Mutations will be maintained in the population, despite the fitness cost for males, because mtDNA is passed down the female line. We looked for this so-called mother's curse effect in our captive colony of European brown hares. Significantly reduced male reproductive success was detected for a divergent haplotype that could be traced back to hares imported from a remote population. Median reproductive success for these hares was 0.17 compared to 0.49 for the indigenous haplotypes (Wilcoxon rank-sum, P = 0.002). No difference was detected for female reproductive success, nor were we able to find a nuclear DNA component to variation in male fertility. Our data are strong evidence for a mother's curse effect persisting despite multiple crossings over seven generations. These data raise important issues relating to the reproductive fitness of small or intermixing populations and have particular implications for the management of populations for conservation.

Energy exploitation and economic growth in Western China: An empirical analysis based on the resource curse hypothesis

Based on resource curse hypothesis, this paper carries out an econometric analysis on the relationship and its transmission mechanism between energy exploitation and economic growth with cross-province panel data over 1991–2006. Results reveal that there is the significantly negative correlation between energy exploitation and economic growth, which indicates since the 1990s, the resource curse effect from energy exploitation has appeared evidently; though, before the implementation of the Western development strategy, energy exploitation acted negatively on opening degree, S&T innovation and human capital input, the effect was yet uncreated. However, after the implementation of the strategy, the effect emerged evidently as a result of the enhanced negative effect of energy exploitation on S&T innovation and human capital input. Moreover, further tests indicate that energy exploitation impeded economic growth mainly through three indirect transmission channels: The crowding-out effect towards human capital input and S&T innovation, and the weakening of institution aroused by rent-seeking and corruption. And among them, human capital input is the strongest transmission factor.

Djibouti's unusual resource curse

ABSTRACTAn extensive literature on the ‘resource curse’ posits that abundant natural resources ‘curse’ countries possessing them with negative economic, social and political externalities. Usually, scholars identify tangible resources like oil, diamonds or timber, rarely questioning whether other kinds of resources might have the same impact, and under what conditions. This paper examines how little-studied Djibouti's non-tangible resources – geo-strategic location and aid-inspiring poverty – have produced ‘curse’ effects; with an economy dominated by US and French military spending (and concomitant aid) and rents on trade passing to and from Ethiopia, tiny Djibouti suffers from this curse. It draws four conclusions. First, resource curse effects can derive from non-traditional sources. Second, leaders' policy decisions matter at least as much as the presence or absence of resources. Third, advanced countries' spending patterns in their less-developed allies often produce unintended consequences. Finally, even tiny countries can provide scholars and policy makers with new insights.

The More the Merrier? Number of Bidders, Information Dispersion, Renegotiation and Winner's Curse in Toll Road Concessions

We empirically assess the winner’s curse effect in auctions for toll road concessions. First, we investigate the overall winner’s curse effects on bidding behaviour. Second, we account for differing levels of common-value components. Third, we investigate whether the possibility of renegotiation affects the winner’s curse effect. Using a unique dataset of 49 concessions, we show that the winner’s curse effect is particularly strong, i.e. bidders bid less aggressively when they expect more competition. In addition, we observe that this effect is larger for projects where the common uncertainty is greater, and is dampened in weaker institutional frameworks, in which renegotiations are easier.

Bank Credit Cycles

Private information about prospective borrowers produced by a bank can affect rival lenders due to a winner’s curse effect. Strategic interaction between banks with respect to the intensity of costly information production results in endogenous cycles, periodic credit crunches. Empirical tests are constructed based on parameterizing public information about relative bank performance that is at the root of banks’ beliefs about rival banks’ behavior. Consistent with the theory, we find that the relative performance of rival banks has predictive power for subsequent lending in the card market, where we can identify the main competitors. At the macroeconomic level, we show that the relative bank performance of commercial and industrial loans is an autonomous source of macroeconomic fluctuations. We also find that the relative bank performance is a priced risk factor for both banks and nonfinancial firms. The factor-coefficients for nonfinancial firms are decreasing with size.