Curse or Blessing - Development or Misery

Africa Department
Curse or Blessing Development or Misery

Scrambling to the Bottom or Scrambling to the Top
Natural Resources, Economic Growth, and Conflict: A Literature Review
Foreword
Much has been written about natural resources, economic growth and conflict. In particular, the early
reception of studies on the linkage between resources and conflict was characterized by an overly simplistic
confrontation of the two supposed motivations for rebellion, greed versus grievance. In the same vein, the
discovery of oil reserves has, in some instances, been characterized as a curse, with negative economic effects
supposedly outweighing the potential benefits. Since then, however, new insights have helped to nuance the
discussion. Natural resources have come to be seen as both, a potential curse and a blessing. Researchers
around the globe have identified numerous intervening variables, showing that there is no automatic link
between natural resources and conflict or growth.
This study, conducted by the Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ) GmbH on behalf
of the German Ministry for Economic Cooperation and Development (BMZ), presents the state of the art of
research on the multiple interlinkages between natural resources, economic growth and conflict. While the
relationship between natural resources and economic growth remains controversial among researchers, countries rich in natural resources would be ill-advised to abstain from their exploitation. Rather, the crucial question
is how to promote natural resource management in a socially and environmentally sustainable way so that they
contribute to economic development and poverty reduction. Sound institutions and policies provide much of the
answer to this question. The study presents a number of approaches that can support the development-oriented
management of natural resources.
First of all, the country context is of key importance. There is no one size fits all solution to good resource
governance. The sheer panoply of resources such as oil, kimberlite or alluvial diamonds, forests or water
underscores the necessity of well-adapted approaches. The types of resources as well as the institutional and
political contexts are decisive for the design of an appropriate management strategy. Some positive results
have been achieved so far with community based forest management, provided community and public
agencies are both actively associated with the process. Likewise, public private partnerships are often considered promising approaches to the fair management of scarce resources. Other approaches are also presented
in the study: natural resource funds, direct distribution, and initiatives aiming at increased transparency and
certification, such as the Extractive Industries Transparency Initiative, Publish What You Pay, or the Kimberly Process Certification Scheme. There is, however, still room for improvement in addressing the problems
linked to resource scarcity as well as resource abundance.
The authors of the study, Dr. Stormy-Annika Mildner and Gitta Lauster from the German Institute for
International and Security Affairs (SWP) provide us with valuable insights into what works and under what
circumstances. The preparation of the study was supported by Wiebke Wodni. The issues discussed in this
study are of great relevance for practical development cooperation. GIZ, for example, focuses on important
aspects such as the transparency and certification of natural resources. It also addresses good resource
governance in the framework of promoting peace and security, regional integration, good financial governance and environmental protection.
I hope you find this study both interesting and rewarding.
Andreas Proksch
Director General, Africa Department,
Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ) GmbH
A. Introduction and Summary of Findings
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B. Natural Resources and Economic Growth
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1. Introduction
1.1 Resource Scarcity and Economic Growth
1.2 Resource Abundance and Economic Growth
2. Resource Abundance and Economic Growth
2.1 Economic Approaches: Dutch Disease
2.1.1 Volatility
2.1.2 De-Industrialization
2.1.3 Foreign Direct Investment
2.2 Political Economy Approaches: Institutions and Policy-Making
2.2.1 Pro-Cyclicality of Fiscal Policy and Government Debt
2.2.2 Unproductive Investment
2.2.3 Revenue-Grabbing and Rent-Seeking
2.2.3.1 Centralized Mechanisms: Leadership and Accountability
2.2.3.2 De-Centralized Mechanisms: Rent-Seeking
2.3 Some Problems with Quantitative Cross-Country Analyses
2.4 Individual Country Case Studies: Taking a Closer Look at West Africa
2.4.1 The Resource Curse: Cursed by Oil and Diamonds?
2.4.2 Exceptions to the Rule?
2.5 Conclusion
C. Natural Resources and Conflict

1. Introduction
2. Resource Scarcity and Conflict
2.1 Population and Environmental Degradation as Sources of Scarcity

2.1.1 Theoretical Foundations Linking Population and Environmental Variables to Violent Conflict
2.1.2 Demand-Induced Scarcity and Violent Conflict
2.1.3 Supply-Induced Scarcity and Violent Conflict
2.1.4 Contested Relationship between Supply- and Demand-Induced Scarcity and Violent Conflict
2.2 Institutional Failure as a Source of Scarcity and Conflict
2.2.1 Resources, Institutions, and Scarcity
2.2.2 Resources, Institutions, and Conflict
2.3 Unequal Power Relations as Sources of Scarcity
2.3.1 Farmer-Herder Conflicts
2.3.2 Interaction of Resources and Ethnic Conflicts
2.4 Conclusion
3. Resource Abundance and Conflict
3.1 Mechanisms
3.1.1 Mechanism I: Opportunity and Feasibility
3.1.2 Mechanism II: State Capacity
3.1.3 Additional Mechanisms
3.2 Dependent, Independent, and Intervening Variables: A specification
3.2.1 The Dependent Variable: Conflict Onset, Duration, or Severity?
3.2.2 The Independent Variable: Resource Characteristics and Selected Resources
3.2.2.1 Resource Characteristics
3.2.2.2 Selected Resources
3.2.3 The Intervening Variable: Institutions
3.3 Negative Relationship and Reverse Causality
3.4 Conclusion
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D. Natural Resource Governance Mechanisms and Policy Recommendations 83

1. Introduction
2. Addressing the Problems of Resource Scarcity
2.1 Community-Based Natural Resource Management, Benefit-Sharing and PPPs

2.1.1 CBNRM: Forest Management
2.1.2 Benefit-Sharing and PPPs: Water Management
3. Addressing the Pitfalls of Resource Abundance
3.1 Domestic Economic Instruments: Managing Windfalls and Volatility
3.1.1 Economic and Export Diversification
3.1.2 Privatization
3.1.3 Host Country Agreements
3.1.4 Fiscal Management
3.1.5 Natural Resource Funds
3.1.6 Direct Distribution
3.2 Moving from Economics to Politics: Involving External Monitors
3.2.1 Transparency and Public Awareness
3.2.2 Certification Schemes
3.2.3 Industrial and Corporate Responsibility
4. Conclusion
E. Bibliography


C. Natural Resources and Conflict
D. Natural Resource Governance Mechanisms and Policy Recommendations
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Artisanal gold and diamond mining in the Bafin River in Kono District, Sierra Leone (Picture: GIZ, Lutz Neumann).
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Introduction and Summary of Findings
The question is how to make best use of the
resource. The goal is to be a Norway rather
than a Nigeria. The same point applies to
other precious minerals: the goal is to be
a Botswana rather than a Bolivia, a Chile
rather than a Congo. Frankel 2010: 12
The markets for primary products energetic resources and metals but also agricultural products have been highly turbulent in recent years: High growth rates of
GDP, particularly in emerging economies, and increasing worldwide demand have led
to steep price hikes. Between 2002 and 2008, the price of non-fuel commodities rose
by 159 percent, metal and mineral prices by 285 percent and agricultural raw material
prices by 133 percent.1 Although primary commodity prices dropped considerably
during the financial and economic crisis in 2008/ 2009, they are already on the rise
again, fuelled by the global economic recovery. While one barrel of oil was priced at
50 Dollar in January 2009, the price has hiked back to 80 US-Dollar in July 2010.2
Within a year, the price for steel increased by about 40 percent (May 2009 to July
2010).3 Resource-hungry countries such as China are increasingly investing in
African and Latin American countries to secure access to much needed resources.
The renewed interest in Africas oil and mineral resources, in particular by the
emerging Asian powers (scramble for Africa), has re-sparked the debate about the
effects of resource wealth on African countries.
Natural resources as a
Natural resources, here defined as stocks of materials that exist in the natural
environment that are both scarce and economically useful in production or consump- basis for development?
tion, either in their raw state or after a minimal amount of processing (WTO 2010),
can generate and sustain growth, thereby reducing poverty and boosting development. As the OECD (2009) highlighted, natural capital contributes directly to
economic incomes, employment, and fiscal revenues. The OECD finds that natural
resources can generate a wide range of positive externalities at the local, national and
global levels and lead to technology and knowledge transfers, which spur economic
(pro-poor) growth. Even so, many resource-dependent countries are, in fact, characterized by disappointing growth rates, high inequality and wide-spread impoverishment, particularly in rural areas, bad institutions, and an increased risk of civil
violence. They often suffer from the volatility of resource prices that pose serious
challenges to their macroeconomic stability. Is natural resource wealth (and resource
dependence) therefore a blessing or a curse? Do revenues from resources provide
poorer countries with the necessary push for development, or are they the breeding
ground for corruption, rent-seeking behaviour, and violent conflict?
On the correlation of resources,
Countless economists and political scientists have analyzed the relationship between
resource deposits (wealth and abundance of as well as dependence on natural resourc- growth and stability
es), economic growth, income distribution, poverty, political institutions, stability,
and conflict in quantitative (econometric modelling and statistical regressions;
cross-country and time-series analyses) and qualitative analyses (comparative and
individual case studies). The results are mixed. Two recurring findings can be
highlighted: First, the resource curse cannot be attributed to the resource itself but
rather to the types of arrangements which have developed around its exploitation.
And second, the resource curse is anything but inevitable. What is more, institutions
1 EurActiv, Raw Materials: Heading for a Global Resource Crunch? July 26, 2010, http://www.euractiv.com/en/sustainability/
raw-materials-heading-global-resource-crunch-linksdossier-188526 (accessed: September 9, 2010).
2 International Energy Agency, Highlights of the Latest Oil Market Report, http://omrpublic.iea.org/.
3 Up to Date Information on Steel Prices from around the Globe, http://www.worldsteelprices.com/ (accessed: August 24, 2010).
08 Introduction and Summary of Findings
matter. As the OECD (2009) hastens to add to its positive view on resources, sustainable natural resource management raises unique challenges. According to the
UNCTAD (2007), the economic challenge is threefold: (1) how to create value from
the mineral deposits, (2) how to capture that value locally, and (3) how to make the
best use of revenues created from the extractive activities. The OECD (2009: 18)
emphasizes that the political and governance dimensions play a key role in pro-poor
natural resources management. Whether resources are a blessing or a curse depends
on several factors: Are resource proceeds consumed or saved? Are they invested in
high- or low-return enterprises? Will large or small parts of the population benefit?
Does the government handle them responsibly and in a transparent manner? Thus,
provided the right policies, the resource curse can be turned into a blessing.
We have classified the vast body of literature into three categories:
B. Natural Resources and Economic Growth:

Part B of this report deals with the relationship between resources and economic
growth, focusing on resource abundance and dependence. The economic literature
identifies three channels of causality from natural resources to underperformance of
economic growth: (1) Natural resource dependence exposes countries to volatility,
particularly in commodity prices, and exchange rate fluctuations. (2) Natural resource
ownership makes countries susceptible to Dutch disease booming resource prices
lead to an appreciation of the exchange rate and crowd out other export sectors
(usually manufacturing), hampering industrialization. (3) Natural resources generate
rents which lead to rent-seeking and an unproductive use of a countrys wealth. While
earlier studies (1980s/1990s) identified Dutch disease as key to depressed economic
growth, more recent analyses find that institutions play, in fact, a larger role. The
political economy literature highlights four problems, which arise due to weak and
insufficient institutions: (1) pro-cyclical fiscal policy, (2) debt accumulation, (3)
misallocation of investment, and (4) rent-seeking behaviour. Most studies focus on oil
and minerals, some on precious stones like diamonds and only few on other resources
such as forestry and agricultural products. Rarely, studies consider the different
characteristics of resources and their effect on economic growth. Our exploration of
the material reveals that the issue remains a topic for further research on: the right
proxies for resource endowment and dependence, the different effects of different
types of resources, and the relative importance of various transmission channels, to
name just a few. One particular problem in the literature is the sometimes rather
careless use of the terms resource wealth, abundance, endowment, and dependence.
While some studies do define and carefully apply these different concepts, others use
the terms interchangeably, designating countries resource-rich even when measured
in terms of actual resource deposits they are anything but rich in resources. Often,
the adequate term would be resource dependence. The problem of an inaccurate
characterization of a countrys resource situation has severe policy implications.
Introduction and Summary of Findings 09
Presumable resource wealth can incentivize countries to concentrate on the primary

sector, disincentivizing diversification of the economy.
C. Natural Resources and Conflict:

In part C, we summarize the literature on resources and conflict. This section focuses
on the question of greed or grievance. In the past 30 years, two schools of thought
have evolved: One school identifies scarcity of natural resources as sources of conflict, while the other one concludes the opposite, seeing abundance as a potential
driver for conflict. Scarcity perpetuates grievance while abundance fosters greed and
thus leads to conflict. With regard to scarcity, we identify three channels how resources can lead to conflict and categorize the literature accordingly: (1) population growth
and environmental degradation, (2) institutional failure, and (3) unequal power
relations. Concerning resource abundance and conflict, the literature focuses on two
mechanisms linking abundance and conflict: (1) looting rebels and (2) weak states.
Several authors highlight the importance of special characteristics of certain resources
in determining this relationship: Point-source resources and diffuse resources,
lootable versus non-lootable resources. The literature shows that it is difficult to draw
a distinct line between resource scarcity and abundance as cause and accelerator for
conflict. The literature does not provide a satisfactory answer. Often, it is more the
type of resource that determines the course of the discussion: Scarcity (grievance)
studies generally deal with renewable and wide-spread resources, while abundance
(greed) studies mostly consider non-renewable and concentrated resources.
D. Natural Resource Governance Mechanisms and Policy Recommendations:
In Part D, we outline the most acknowledged natural resource management and
governance strategies for both resource scarcity and wealth. With regard to resource
scarcity, we focussed on community-based natural resource management, benefitsharing and public-private partnerships. Instruments to tackle resource wealth include
(1) management of public and private resource windfalls (including revenue transparency initiatives such as the Extractive Industries Transparency Initiative, EITI); (2)
funds for distributing resource revenues; (3) policies to improve institutional quality;
(4) procedures to strengthen accountability and transparency in industry processes,
such as the Kimberly Process; and (5) corporate social responsibility. Within this
overview, we find desiderata for future research: There is considerable need for more
systematic, cross-country analysis and evaluation of the effectiveness of policy
instruments. While we do not propose the feasibility of a one-size-fits-all approach in
overcoming the resource curse, a cross-country, cross-instrument comparison of
countries with similar pre-conditions might reveal interesting new insights into
resource governance and management.
Open pit diamond mining in a kimberlite pipe in Kono District, Sierra Leone, by Koidu Holdings (Picture: GIZ, Lutz Neumann).
Natural Resources and Economic Growth 11

Natural Resources and Economic Growth
Is there a scientifically robust relationship
between natural resources and economic growth? Is this relationship positive
or negative? What matters resource
dependence or resource abundance?
1. Introduction
The literature on natural resources and economic growth can be roughly divided into
two large sub-groups. One ponders the relationship between resource scarcity and
economic growth (Solow 1974; Stiglitz 1974; Uri 1996; Barbier 1998; Krautkraemer
1998, 2005; Bretschger/ Smulders 2003; Simpson et al. 2005; Wright/ Czelusta 2004
etc.); the other one focuses on the relationship between resource abundance (wealth
as well as dependence) and economic growth (Sachs/ Warner 1995, 1999; Gylfason/
Herbertsson 2001; Gylfason 2004, 2006; Stijns 2002, 2005, 2006; Brunnschweiler
2006; van der Ploeg 2009a, 2009b, 2010; Frankel 2010).4
1.1 Resource Scarcity and Economic Growth

For centuries, economists have dwelled on the relationship between resource scarcity
and economic growth. During the 1970s, the issue gained great prominence in
response to high energy prices and the OPEC oil embargo. The pioneers of systemically examining the growth effects of natural resource scarcity were Solow (1974) and
Stiglitz (1974), both using an exogenous growth model. Their conclusions were rather
optimistic: They showed that sustained economic growth was possible as long as the
reproducible factor of production (physical capital) could be substituted for exhaustible natural resources along the economys balanced growth path. In other words,
even when natural resources are exhaustible, in limited supply, essential for production and in high demand, sustained economic growth in per capita consumption may
be feasible. At the same time, a growing number of studies focused on the reverse
relationship: the effects of growth on resources and the environment. In 1972, the
Club of Rome published its The Limits to Growth, predicting dire consequences by
the early part of the twenty-first century unless population and economic growth
were significantly curtailed.
Since then, a multitude of studies has examined, under which conditions depletion of When does resource depletion
curtail economic growth?
non-renewable resources limits economic growth, how reproducible factors of
production (physical capital) can substitute exhaustible natural resources, and how
substitution possibilities and resource depletion affect the incentives to innovate. In
subsequent studies (many of them based on endogenous growth models), technology
plays a central role in answering these questions. Krautkraemer (2005: 4) phrases this
as follows: In essence, the issue is whether technological progress and capital
accumulation can overcome diminishing marginal returns to finite natural resources.
In his overview of the academic debate on resource scarcity and growth, he finds that
humans have, in fact, been quite adapt in finding solutions to the problem of scarce
natural resources, in particular when scarcity is signalled via the price. Humans have
substituted scarce natural resources with abundant ones, have advanced recycling
methods, and have developed technologies that economize on scarce natural resources. Yet, he also cautions that price signals do not always work sufficiently the
4 In the literature, authors have often used the terms abundance, richness and wealth for a countrys resource
possessions without further defining their meaning and distinguishing between them. The term abundance implies a
certain resource wealth. A more neutral term is resource endowment (which can be high or low). Where possible, we will
use the term endowment. Within our analysis of the reviewed articles, we will, however, follow the terminology the
respective authors have used.
possible consequence being overexploitation of resources. Recent decades have seen

increasing concern about the environmental impact of population and economic
growth, which is also reflected in the literature. As Krautkraemer points out, there
have been two shifts in the academic debate: (1) from the effects of resource scarcity
on economic growth to the effects of economic growth on resources, and (2) from
the focus on food, timber, coal, iron, copper, and oil to air and water quality, global
climate, and ecosystem preservation.
Resource scarcity Most studies on resource scarcity and growth develop mathematical growth models
and growth models with which they try to predict the relationship between resource scarcity (or deple-
tion) and economic growth and to determine the optimal rate of resource depletion.
Fewer studies try to test this empirically. The empirical evidence to date for natural
resource scarcity points largely in favour of technological progress, i.e. technological
progress can lessen the effects of increasing scarcity. At least on the global level, as
Krautkraemer points out, the many predictions of impending doom have yet to
become true. Therefore, we will not further dwell on their findings but concentrate
our overview on the relationship between resource abundance and economic growth.
We will return to the issue of (local) resource scarcity in chapter C, when we analyze
the relationship between resources and conflicts.
1.2 Resource Abundance and Economic Growth

Prior to the 1980s, many development economists suggested that natural resource
abundance would enable developing countries to make the transition from underdevelopment to industrial take-off. Based on Rustows The Stages of Economic
Growth (1960), Rosenstein-Rodan (1961) and Murphy et al. (1989), for instance,
argue that low-income countries need some sort of large demand expansion (a big
push) to enlarge the size of their markets so that entrepreneurs find it profitable to
incur the fixed costs of industrialization. Accordingly, natural resources can be an
important catalyst for growth and development.
Resource abundance can This belief has been severely challenged since the 1980s/1990s. Natural resource
decelerate economic growth wealth has been associated with slower growth (Sachs/ Warner, 1995, 1997), greater
inequality and widespread impoverishment, particularly in rural areas (Ross 2004;

Weinthal/ Luong 2006), bad institutions (Tornell/ Lane 1999; Ross 1999), and an
increased risk of civil violence (Collier/ Hoeffler 2001). Ross (2001), for example,
provides an analysis of the performance of oil and mineral dependent countries,
finding that most of them rank low in the Human Development Index (HDI). While
earlier studies saw the main cause of the resource curse in a phenomenon generally
called Dutch disease, more recent studies have focused on political economy models,
finding that institutions play a central role in determining whether resource abundance is good or bad for economic growth.
Most of the literature starts with two puzzles (paradox of plenty): (1) Frankel (2010) Paradox of plenty
asks why some countries, such as Angola, Nigeria, Sudan, and the DR Congo5, are
rich in oil, diamonds and minerals, yet their people experience low per capita income
and low living standards, while other countries that have virtually no exportable
resources, such as South Korea and Singapore, have achieved high living standards.
(2) Van der Ploeg (2010) marvels why some resource-rich countries have experienced
dismal growth rates while others have grown rapidly. Botswana, for example, is rich
in diamonds, yet one of the best performers in terms of democracy, stability, and
growth of income, while the DR Congo is among the worst.
Curse or blessing?
The central question is therefore whether natural resources are a curse or a blessing.
The pioneers of the literature on resources and economic growth are Sachs and Warner with their 1995 study, Natural Resource Abundance and Economic Growth. The
two economists found that economies with a high ratio of primary commodity
exports to GDP (their measure for resource dependence) in 1971 (their base year)
tended to have low growth rates during the subsequent period of 19711989. They
concluded that one of the surprising features of modern economic growth is that
economies with abundant natural resources have tended to grow less rapidly than
natural-resource-scarce economies (Sachs/ Warner 1995, Abstract). They repeated
these results in subsequent studies (1997) with a larger data basis.
Defining the independent
These earlier studies, however, did not clearly differentiate between resource
variable
abundance, intensity and dependence, using these terms interchangeably. Proxies
for the importance of resources were the share of primary commodity exports in
the total exports of a country and the share of primary commodity exports in GDP.
As Davis (2009) explains, this approach infers endowments from a countrys
revealed comparative advantage. A more direct approach would measure physical
endowments, i.e. resource stocks, directly. These studies are also less detailed with
regard to the transmission mechanism, dismissing the importance of political
channels of the resource curse. In other words, they are less precise in answering
the question of why resource abundance impedes economic growth. Most often,
two mechanisms are highlighted: shrinking exports and declining investment, also
known as Dutch disease.
More recent studies make the important distinction between resource abundance and Differentiation between
resource dependence (Gylfason/ Herbertsson 2001; Gylfason 2004, 2006; Stijns 2005; abundance and dependence
Brunnschweiler 2006). Abundance describes the amount of natural capital that a
country has at its disposal: mineral deposits, oil fields, forests, land, and the like.
Dependence, on the other hand, is defined by some economists (Gylfason 2004,
2006) as the extent to which a nation depends on these natural resources for its
livelihood, for growth, income, and exports.
5 The author identifies these countries although it can, in fact, be questioned whether all of them are really rich in the listed
resources. A better term used here would be resource dependence.
The WTO (2009) compiled a list of countries highly dependent on resource exports:
Export shares of fuel in overall exports for Kuwait, the Bolivarian Republic of
Venezuela, Algeria, Nigeria, and Angola were all above 90 percent. While the shares
of mining products in total exports are much smaller on average, mining products
still dominate exports in many countries, such as Zambia (80 per cent), Chile (60 per
cent), Niger (58 per cent), Jamaica (56 per cent), and Peru (43 percent). But as Wright
and Czelusta (2004) point out, this may simply reflect an absence of other internationally competitive sectors in the economy rather than resource abundance.
Accordingly, Gylfason (2004, 2006), Stijns (2005), and the World Bank (2008) explain
why a distinction between resource abundance and dependence is necessary: Some
countries such as Australia, Canada, and the United States are resource-rich but are
not resource-dependent as they also have large manufacturing and service sectors.
Other resource abundant countries, such as the oil producing countries of the
Organization of Petroleum Exporting Countries (OPEC), still heavily rely on their
resources. Yet other countries that are resource dependent have relatively poor
resource endowments. Brunnschweiler (2006) agrees with the qualification that
natural resource abundance and natural resource exports do not necessarily correlate.
In accordance, many authors modified the proxy for resource dependence. Gylfason
(2004, 2006), for example, uses the share of natural capital in national wealth as proxy
for resource dependence. National wealth is defined as the sum of real capital, human
capital, and natural capital, but does not include financial capital, foreign capital, and
social capital. Brunnschweiler (2006) uses natural wealth indicators developed by the
World Bank, which value different components of natural wealth in US-Dollar per
capita to determine resource dependence. Lederman and Malony (2008), for instance,
use net exports per worker instead. Nonetheless, as Davis (2009) cautions, it is
anything but easy to identify those economies that are particularly dependent on
mineral and metal production.
Little evidence for Are resources a blessing or a curse? The literature shows that either outcome is
direct causality possible. A large number of economic studies the majority being based on quantita-
tive regression analyses find a statistically significant negative relationship between

natural resource abundance and economic growth, i.e. resource abundance impedes
economic growth. Thus, in most resource-rich countries (the studies focus mainly on
oil and minerals), long-run economic growth tends to be slower than in other
countries that are less well endowed with natural resources and have more diversified
economic structures. However, cross-country regressions sometimes overlook
country-specific differences (Stijns 2005). Thus, there are many examples of countries
which were able to utilize their resource wealth in a positive way.
As a consequence, these findings are anything but universally accepted. Many

economists find that natural resources per se do not have a significant direct and
negative impact on growth. Brunnschweiler and Bulte (2008) and van der Ploeg
(2009) even discover a positive direct effect of resource wealth on growth. At the
same time, they take a closer look at the transmission mechanisms (intermediate
variables), through which resource dependence can impede long-run economic
growth (Gylfason 2004; Stijns 2005, 2006; Brunnschweiler 2006; van der Ploeg 2009;
Karabegovi 2010). They find that resource dependence affects growth negatively via
intermediate variables. In other words, natural resources influence some variable X,
which itself has a (negative) effect on economic growth. These further channels are:
(1) Dutch disease (price fluctuations and de-industrialization) and (2) institutions
(pro-cyclical fiscal policy, debt accumulation, rent-seeking).
Furthermore, many studies find that the relationship between resources and econom- Relationship is
income-sensitive
ic growth is income-sensitive: In high income countries, with well-functioning
institutions, resource dependence does not impede economic growth, while in poorer
countries it has a negative impact. Gylfason (2002: Non-technical summary) phrases
this persuasively: The problem is not the existence of natural wealth per se, but
rather the failure to avert the dangers that accompany the gifts of nature. Natural
resources can be a blessing and a curse. While good macroeconomic management and
fiscal discipline cannot eliminate these risks completely, they can significantly mitigate
them. Conversely, fiscal irresponsibility can contribute to boom and bust cycles.
When institutions, such as the rule of law, which lead to transparency and accountability function well, the relationship between resource dependence and economic
growth can become a positive one (Brunnschweiler 2006).
A shortcoming within most studies is a lack of differentiation between resources No differentiation between
resource types
according to their characteristics, for example renewable versus non-renewable
resources, point-source resources (a concentrated source) versus diffuse resources. Stijns (2005) further cautions that the story behind the effect of natural
resources in economic growth is a complex one that typical growth regressions do
not capture well.
16 Resource Abundance and Economic Growth

Selected Quantitative Studies on the Relationship between Resources Abundance and Economic Growth
Intermediate variable
Quantitative Studies
Relationship between Resources and Growth: Positive/ Inconclusive Results

No intermediate variable: Direct effect of resources on growth
Davis (1995)
Papyrakis/ Gerlagh (2004)
Brunnschweiler (2006)
Brunnschweiler/Bulte (2008)
van der Ploeg (2007, 2008, 2009, 2010)
Analysis of various channels
Lederman/ Malony (2008)
Relationship between Resources and Growth: Negative

Economic Channels
Volatility
Resource price fluctuations
Fluctuations of resource revenues
Fluctuations of output
Hausmann/ Rigobon (2002)

van der Ploeg (2007, 2009, 2010)
van der Ploeg/ Poelhekke (2009)
Bems/ Filho (2009)
Anshasy/ Bradley (2009)
Dutch disease
(de-industrialization)
Appreciation of the currency
Competitiveness of other tradable goods
Shift of factors of production
Sachs/ Warner (1995, 1999)

Corden (1984)
Strijn (2002, 2003)
Gylfason (2001, 2004, 2006)
Polterovich et al. (2008).
Bornhorst et al. (2009)
Polterovich et al. (2010)
Harding/ Venables (2010)
van der Ploeg (2007, 2008, 2009, 2010)
Foreign Direct Investment
Asiedu (2005)
Bannermann (2007)
Political (Economy) Channels

Institutions
van der Ploeg (2007, 2009)

Brunnschweiler (2006)
Iimi (2006)
Brunnschweiler/ Bulte (2008)
Pro-cyclical fiscal policy
Manzano/ Rigobon (2001)

Sinnott (2009)
Harding/ van der Ploeg (2009)
Villafuert/ Lopez-Murphy (2010)
Dabn/ Hlis (2010)
Debt accumulation, saving and investment
Gylfason/ Zoega (2001)

Manzano/ Rigobon (2010)
van der Ploeg (2008)
World Bank (2008)
Arezki/ Brckner (2010)
(Un-)productive investment (Human capital/education
Stijns (2002, 2003)

De Ferranti et al. (2002)
Manning (2004)
Gylfason (2001, 2004, 2006)
Bravo-Ortega/ de Gregoria (2005)
Bulte et al. (2005)
Leadership and accountability
IImi/ Ojima (2005)

Collier/ Hoeffler (2005)
Collier (2006)
Robinson et al. (2006)
Caselli/ Cunningham (2009)
McGuirk (2010)
Bornhorst et al. (2009)
Rent-seeking
Leite/ Weidmann (1999)

Auty (1990, 2001, 2007, 2009)
Torvik (2002)
Sala-i-Martin/ Subramanian (2003)
Gylfason (2004)
Isham, et al, (2005)
Matsen/ Torvik (2005)
Bulte et al. (2005)
Weinthal/ Luong (2006)
Mehlum et al. (2006)
Arezki/ Brckner (2009)
Note: Some authors cover more than one intermediate variable. We have categorized them according to their main focus.
Resource Abundance and Economic Growth 17
2. Resource Abundance and Economic Growth

A multitude of studies has found a robust negative relationship between resource
abundance and economic growth. As the economist Jeffrey Frankel (2010) in his
overview The Natural Resource Curse: A Survey points out, this finding is not confined to individual anecdotes or case studies. Moreover, it has been affirmed by
econometric tests of the determinants of economic performance across a comprehensive sample of countries. However, most of the studies point out that the effect is
rarely direct but occurs via various intermediate variables. In the following section,
we will take a closer look at these transmission channels.
How resources can impede economic growth
Intervening variables
Independent variables
DEpendent variable
Resource Abundance
Direct Effect
Resource Dependence
Indirect Effects
Dutch disease
Institutions
Economic Growth
2.1 Economic Approaches: Dutch Disease

Dutch disease describes a situation in which resource wealth impedes long-run
economic growth. It is a term originally coined to refer to the short-lived problems
that the Netherlands faced on two occasions, in the 17th century and in the early
1960s: In the 17th century, the country overly depended on tulip exports. Due to
increasing demand, the price for rare tulips shot into unexpected heights. This
tempted many to speculate in the market at the cost of developing other sectors of
the economy. When the tulip market crashed, so did the whole economy. In the early
1960s, the country experienced a vast increase in its wealth after discovering large
natural gas deposits in the North Sea. Unexpectedly, the discovery had serious
repercussions on important segments of the countrys economy, making Dutch
non-gas exports less competitive and impeding economic growth. The Economist
phrased this syndrome Dutch disease in 1977.
Oil producing countries
Gylfason (2004, 2006) compares two groups of Arab countries: a group of six
lag behind in economic
countries that do not belong to the OPEC (Egypt, Jordan, Morocco, Sudan, Syria,
development
and Tunisia) and a group of six OPEC countries (Algeria, Iran, Kuwait, Libya, Saudi
Arabia, and the United Arab Emirates). He finds that the non-oil-producing countries
achieved, on average, a significant increase in their total exports relative to GDP since
1960, while the total exports of the oil-producing countries declined as a proportion
of GDP. Furthermore, he shows that the share of manufacturing exports in total
exports (excluding services exports) in the non-oil-producing Arab countries
increased from about ten percent in the 1960s to 4050 percent in the 1990s, while
the same ratio hovered around ten percent in the oil-producing Arab countries
without showing a strong tendency to rise over time. Gylfason found this negative
relationship between resource dependence and growth also with a larger country
sample (84 countries) through a cross-country regression analysis: He singled out a
strong negative correlation between natural resource dependence and exports and a
less but still evident negative correlation between natural resource dependence and
foreign direct investment.
Causes of the Dutch disease: There are three channels through which natural resource wealth can cause Dutch
Volatility, disease: (1) Volatility of world prices of energy and other mineral and agricultural
de-industrialization, FDI commodities, (2) de-industrialization (resources may crowd out manufacturing,
shifting a countrys resources such as the labour force from the tradable to the
non-tradable sector of the economy), and (3) foreign direct investment. As Davis
(2009) emphasizes, spending and factor reallocation during a resource boom does not
necessarily generate a disease. However, problems arise when some market failure
inhibits an appropriate structural adjustment van der Ploeg (2009), for example,
points at the financial sector or if there is some existing distortion in the economy
which is intensified by the mineral export boom. Furthermore, the Dutch disease
theory rests on two basic assumptions: (1) commodity specialization is less desirable
than a specialization in manufacturing and (2) the tradable sector is preferable to the
non-tradable sector of the economy, the former being the engine of growth. While
classical growth theory would argue that a country should specialize in the production in which it has a comparative advantage, neoclassical growth models see advantages in manufacturing as it offers greater learning effects (learning-by-doing) and
positive spillovers to other sectors of the economy.
2.1.1 Volatility
Commodities with volatile Commodity prices are characterized by large fluctuations because their supply
prices are a risk for exhibits low price elasticity. Thus, investments in the extractive industries are generaldomestic economies ly associated with high capital intensity and high risk, and are strongly influenced by
political decisions, which in turn are considerably affected by fluctuations in the

market. As a consequence, there is usually a significant time lag in the supply response
to changes in demand. According to several authors, including van der Ploeg (2007,
2009), Anshasy and Bradley (2009) as well as Bems and Filho (2009), this price
volatility can be a major cause of the resource curse. Countries that specialize in
commodities with substantial price volatility have more volatility in their terms of
trade, enjoy less foreign direct investment, and experience lower growth rates than
countries which specialize in less volatile commodities.
In other words, dependence on natural resources increases a countrys vulnerability to

external price shocks, which has a negative effect on growth. Why is this the case?
There are two kinds of mineral booms: (1) an exogenous increase in international
relative prices of raw materials and minerals, and (2) an exogenous increase in the
domestic availability of mineral resources. Both types of booms can lead to an
appreciation of the currency of the resource-exporting country. While having a
higher exchange rate is not inherently bad, as it increases the purchasing power of the
population and therefore raises living standards, the competitiveness of the nonresource based trade sectors comes under pressure. There is a second risk: These
developments can be painfully reversed when the world price of the export commodity falls again.
According to van der Ploeg and Poelhekke (2009) and van der Ploeg (2009), volatility
alone, however, does not sufficiently explain the negative growth impact. Building on
Aghion et al. (2009), who argue that exchange rate volatility can seriously harm
long-term productivity growth, especially in countries with low levels of financial
development, the authors show that volatility of commodity prices has a negative
effect on economic growth in many developing countries, if the financial sector is
poorly developed and output growth is relatively unstable. Thus, these countries find
it more difficult to hedge the risks of commodity price fluctuations and to borrow
money to invest in infrastructure or innovation. Uncertainty about prices also
impedes investments by the private sector. As a consequence, price volatility translates more strongly in macroeconomic volatility in these countries. Resource dependence is thus a curse for already volatile countries (in terms of output growth) with a
poorly developed financial sector, while open and financially developed countries
with a stable macroeconomic environment grow faster despite their resource dependence. Van der Ploeg (2008, 2009) underpins this argument with empirical findings: In
countries like Canada and Norway, resources are a boon for growth, while they
mostly impede growth in Sub-Saharan Africa and the region of the Middle East and
North Africa.

2.1.2 De-Industrialization
A strong upward fluctuation in the world price of export commodities (in our case:
Resource booms shift
production
natural resources) causes a large real appreciation in the currency, which entails an
increase in spending and capital inflows. The result is an increase in the price of
non-traded goods (goods and services such as housing that are not internationally
traded) relative to traded goods (internationally traded goods other than the exported
primary commodities). Pulled by more attractive returns in the export commodity
and in non-traded goods, the resource boom leads to shifting production inputs
(capital and labour) to the booming resource sector and non-tradable sector (retail
trade, services, and construction), thereby reducing the competitiveness of the
non-booming export sectors (for example manufacturing).
Decline of the manu- As an appreciation of the currency makes other export goods less competitive on
facturing sector world markets, Dutch disease tends to bias the composition of exports away from
high-tech or value-added manufacturing and services exports. Harding and Venables (2010), for example, find in their quantitative study of 135 countries for the
period 19752007 that, in response to a resource windfall, non-resource exports
decrease by 3570 percent while non-resource imports increase by 035 percent.
Ismail (2010) holds similar results. The author finds in his cross-country regressions
that a 10 percent oil windfall is generally associated with a 3.4 percent fall in value
added across manufacturing. This is viewed as a problem since tradable goods offer
greater technology transfers and learning effects. Hausmann and Rigobon (2002)
show that (export-) diversified economies are less likely to suffer negative effects of
natural resource wealth. Reducing a countrys economic diversity and increasing
reliance on natural resource exports, on the other hand, has a negative effect on
long-term growth (Gylfason 2004, 2006; Frankel 2010). The decline of the manufacturing sector retards economic growth by decreasing both the demand for and
supply of skilled labour, which in turn affects the level of income inequality and
educational opportunities.
To summarize, the curse is that real exchange rate appreciation impedes economic
diversification and increases dependence on volatile commodity markets. This entails
high adjustment costs in moving back to agriculture or into manufacturing following
resource depletion (Bornhorst et al. 2009). According to Davis (2009), there are thus
two transmission channels, a real channel (exports) and a monetary channel (the
exchange rate).
2.1.3 Foreign Direct Investment

FDI exceptionally high in Foreign direct investment (FDI) in extractive industries accounts for the bulk of FDI
the extractive sector into Africa. The latest surge in commodity prices triggering increases in foreign
investment by transnational corporations (TNCs) has reignited the debate about the
effects of FDI on economic growth in resource-rich countries. In particular, Chinas
increasing interest in resource-rich countries has led scholars to question the spillover
effects of FDI on recipient countries (Frynas/ Paulo 2007; Keenan 2008; Meyerson et
al. 2008; Vines 2010). UNCTAD (2007) gives an overview of the special characteristics that investments in extractive industries have: (1) The extraction of mineral
resources is largely dominated by large-scale, capital-intensive investment. (2) Some
projects are technologically challenging, and investments in them are characterized by
a high degree of uncertainty and long gestation periods. (3) In most developing
countries with resource endowments (China being an exception), mineral extraction is
primarily an export-oriented activity, with significant scope for revenue creation, but
limited opportunities for employment creation and local linkages. (4) Mineral resources are non-renewable and often of strategic, geopolitical importance. As a result, the
level of state involvement tends to be high.
FDI is highly accredited for inducing growth. Yet, there is little research on FDIs
No spillover effects from FDI
association with natural resource intensity as most previous studies have only focused
on spillover effects in the manufacturing sectors. Asiedu (2005: 64) finds in her panel
data for 22 countries in Sub-Saharan Africa over the period 19842000 that FDI in
resource-rich countries are concentrated in natural resources, and investments in such
industries tend not to generate the positive spillovers (i.e. technological transfers,
employment creation) that are often associated with FDI. Bannermann (2007) also
asks how FDI will perform in the context of natural resource abundance: Will the
natural resource curse prevail or can FDI dominate and consequently stimulate
growth and reduce poverty as well as income inequality? He finds that, in fact, FDI is
positively associated with growth but that institutional quality matters greatly.
Accordingly, the UNCTADs World Investment Report 2007 emphasizes that FDI in
extractive industries offers in principle potential contributions to development,
including capital, management and technical skills, as well as promotion of higher
standards and of good operational practices. However, gains have often failed to
materialize. On the contrary, FDI in extractive industries has been associated with
various economic, social, and environmental costs. To benefit from such contributions, countries need to adopt adequate legal and institutional frameworks and to
strike an appropriate balance between the interests of the private sector, the national
host country government, and the local community. Moran (2010) argues similarly
that well-established transparency in revenue streams, controls to prevent corruption,
and measures to set and enforce best-practice environmental standards determine
whether FDI in natural resources will have positive or negative spillovers.
2.2 Political Economy Approaches: Institutions and Policy-Making

The Dutch disease is avoidable
When asked whether or not Dutch disease is inevitable, most economists answer is
no. Torvik (2002), for instance, concludes that the existing literature on Dutch disease
may yield overly pessimistic conclusions for some countries, as learning-by-doing can
be generated in all sectors of the economy. According to Moran (2010), the negative
outcomes in Equatorial Guinea, the DR Congo, Angola, and Nigeria are countered by
positive developmental impacts in Chile, Brazil, Colombia, Argentina, Indonesia,
Malaysia, and Botswana. The author argues that a rich natural resource endowment
can indeed be a curse, but need not be such, because the specific problems associated
with Dutch disease have proven readily manageable with appropriate macroeconomic
policies. What makes the difference is transparency in revenue streams and controls
to prevent corruption. Another way how to overcome Dutch disease is increasing
saving. Matsen and Torvik (2005) find that long-term economic growth can be
positive, provided the savings path is adjusted to take into account the relative
importance of the traded and non-traded goods sectors. Van der Ploeg argues in his
countless studies that, volatility being the key channel for the resource curse, a
well-developed financial sector reduces the negative effect on growth. And according
to Davis (2009), Dutch disease will be avoided when the domestic financial market is
well developed and the central bank can sterilize the increase of foreign exchange
during the boom by carrying out contractionary open market operations.
Context and insti- What do we learn from these studies? Institutions matter. Thus, rule of law, transpartutions matter ency, and accountability play a significant role in determining whether natural
resources become a curse or a blessing. Well-designed institutions and growth-promoting policies substantially increase the chance of economic success (Auty 2001,
2007, 2009; Hodler 2006; Caselli/ Cunningham 2009; Frankel 2010; van der Ploeg
2009 etc.). If institutions are weak, however, resource wealth (and dependence) tends
to impede economic growth. According to Mehlum et al. (2006), the impact of
natural resources on growth is stronger in countries with grabber-friendly political
institutions. This is a problem as mineral exporters in the developing world rank at
the bottom of the list among countries included in both the World Bank Governance
Research Indicators and the Transparency Internationals Corruption Perception
(Weinthal/ Luong 2006). And as if this was not enough, resource wealth tends to
reduce the quality of weak institutions even further: While resources have no impact
on institutions in rich countries with well-functioning and strong institutions, they
negatively impact already weak institutions. Robinson et al. (2006) show how resource
booms create dysfunctional state behaviour in the presence of bad institutions. For
example, natural resources can entail a false sense of security and cause governments
to loose sight of the need for good and growth-friendly macroeconomic management,
including free trade, bureaucratic efficiency, and institutional quality. Politicians are
encouraged to sustain bad policies, to postpone much-needed reforms, and to hand
out favours to political clientele.
State capacity as a In her book The Paradox of Plenty, Terry Lynn Karl (1997) explains what makes
relevant variable governance of oil exploitation in developing countries so complex: (1) oil exporters
are much more dependent on oil revenues than other primary commodity exporters,
for example, cash crops; (2) the economic environment is difficult, characterized by
high price fluctuations; (3) exploitation of resources offers very high rents, which are a
strong incentive for keeping the status quo, hindering much-needed reforms; and (4)
oil extraction is highly capital-intensive and generates little employment. As a consequence, a states capacity to control, extract, and allocate resources and its ability to
create, implement and enforce collective decisions is weakened.
2.2.1 Pro-Cyclicality of Fiscal Policy and Government Debt

Wrong fiscal policy-making Manzano and Rigobon (2001) believe that the obstacle for growth is the debt over-
hang in resource-rich countries. They differentiate between resource-rich and

resource-poor countries. But why do resource-rich countries accumulate debts?
Frankel (2010) sees the answer in a tendency for pro-cyclical fiscal policy. An important reason for pro-cyclical spending is that government receipts from taxes or
royalties rise in resource booms, and the government cannot resist the temptation or
political pressure to increase spending. Sinnott (2009) and Arezki and Brckner
(2010) also find that commodity-rich countries often have poor records of fiscal
discipline. Contrary to a sound fiscal policy, which encourages saving during boom
phases and spending during busts, fiscal policy of many resource-rich countries is
pro-cyclical in nature, which is bad for macroeconomic stability and, hence, for
economic growth. An expansive fiscal policy during an upswing fuels the boom,
leading to an overshooting of the economy, while a restrictive fiscal policy during a
down-swing depresses growth further. Natural cyclical swings of an economy thus
turn into boom-and-bust cycles (Polterovich et al. 2008). Declining resourse revenues
can then wreak havoc on the governments budgets. Consequently, they impede a
governments ability to sustain investment and provide public goods.Villafuert and
Lopez-Murphy (2010) also show in their recent quantitative study that the average
fiscal policy of oil-producing countries (OPCs) has been pro-cyclical and has hence
exacerbated the fluctuations in economic activity. Their responses to the recent oil
price cycle (20032008) lead to a deterioration of their non-oil primary balances
substantially driven by an increase in primary spending. However, this trend was
partially reversed when oil prices declined in 2009. The authors estimate that a minor
reduction in oil prices could lead to very large financing needs in the near future.
Mineral exporters are more likely to incur greater debt, even when world prices soar,
and are thusforced to dedicate a significant percentage of their shrinking GDP to
debt servicing. In 2004, the World Bank classified 12 of the worlds most mineraldependent countries and six of the worlds most oil-dependent countries as highly
indebted poor countries. Six out of the top 10 most indebted countries in Africa are
major fuel exporters (Weinthal/ Luong 2006).
Strong resource sector =

negative saving balance
Recent cases show

The World Bank established in its 2008 report Global Economic Prospects 2009
that, on average, resource-dependent developing countries did a better job in manag- improvements of handling resource booms
ing the macroeconomic consequences of rapidly rising foreign currency earnings
during the last resource boom than in the past. While mineral-rich developing
countries see new economic opportunities and development prospects stemming
from higher export revenues, they have become more aware of the potential adverse
effects associated with resource extraction (UNCTAD 2007). Many governments
have accumulated foreign reserves instead of spending the temporary windfall profits,
and spending was less pro-cyclical. As a consequence, many of the characteristics of
Dutch disease were avoided: The exchange rate appreciated less than during previous
resource booms, and the non-resource sectors avoided large deteriorations in their
international competitiveness. Van der Ploeg (2007) agrees that African countries in
particular reacted more prudently to the latest boom of commodity prices by saving a
substantial part of the windfall natural resource revenues. This positive picture does
not hold for all resource-dependent countries, however, many having pursued less
prudent policies.
24 Natural Resources and Economic Growth
The World Bank (2008) also finds that the share of revenues, which governments save
from increased oil revenues, is only loosely correlated with the size of their reserves.
In other words, countries with smaller reserves should save more than countries with
larger reserves if the resource is viewed as a national asset for current and future
generations. This is, however, often not the case.
Regime types Van der Ploeg (2009) points out that countries with a large percentage of mineral and
energy rents to GNI typically have a negative genuine saving rate. The genuine saving
rate is defined as public and private saving at home and abroad, net depreciation plus
current spending on education. A low or negative genuine saving rate, in turn, has a
negative effect on growth. The important question is thus, why resource-rich countries save less than the optimal genuine saving rate. One answer lies in the poorly
developed financial system and credit market imperfections (Gylfason/ Zoega 2001;
van der Ploeg 2009; Manzano/ Rigobon 2010). Further causes are political distortions, rent-seeking behaviour, and political complacency. A boom can encourage
governments to become overly optimistic about excepted future resource windfalls.
When windfalls are not realized, however, the economy faces recession and stagnation as well as mounting debt. The costs of these prediction errors can easily outweigh the benefits of the resource windfalls.
Arezki and Brckner (2010) investigate the link between the external debt of commodity-exporting countries and movements in international commodity prices by
studying 93 countries between 1970 and 2007. The authors find that there was a
significant difference between the way democracies and autocracies handled the
boom: In democracies, positive commodity price shocks are associated with significantly less external debt and risk of default on that debt than in autocracies. In
autocratic regimes, windfalls were not used to reduce foreign debt. On the contrary,
the risk of default on external debt increased when resource prices and thus also
revenues declined, as governments engaged in unproductive government consumption expenditures, which largely benefited powerful elites. The authors see the reason
for this development in accountability: Political leaders in autocratic regimes are not
held responsible if they do not use windfalls from international commodity price
booms in a responsible manner. Iimi and Ojima (2005) add to this by arguing that
natural resource-dependent countries have less need for tax revenues, thanks to high
resource earnings. These governments, therefore, are relieved of accountability and
fiscal discipline pressures. Van der Ploeg (2007) blames the policy failure, among
others, on the short-sightedness of state actors who fail to take into account adverse
effects of their actions on future generations
2.2.2 Unproductive Investment

Resource wealth can contribute to a countrys development if resource revenues are Re-investment of
resource revenues
invested in infrastructure, health, and education. For example, natural resources can
permanently boost income and welfare through higher human capital, which can
offset the direct negative effect of natural resources on economic growth (BravoOrtega/ De Gregorio 2005). However, this is often not the case. Frankel (2010)
points out that time and again investment takes the form of white elephant projects,
which are stranded without funds for completion or maintenance when the oil price
declines again. According to Medas and Zakharova (2009) oil windfalls are often
spent on higher public sector wages or on increasing the number of workers employed
by the government. When world commodity prices drop, adjustment is difficult due
to the legacy of bloated government spending and debt. Often, resource-dependent
countries lack productive investment, for instance, in education. Several authors show
that the negative growth effects of natural resources stem from lower education
spending and less schooling (Gylfason 2001; Stijns 2006). Abundant natural capital
appears to crowd out human capital. There is evidence that, across countries, public
expenditures on education relative to national income, expected years of schooling,
and school enrolment are all inversely related to natural resource abundance (Gylfason 2001). But why do countries neglect to invest in education? Gylfason (2004)
argues that awash in cash, natural-resource-rich nations may be tempted to underestimate the long-run value of education.
Davis (2009) puts a grain of salt into this argument. He points out that it only works
if one believes that the path to development and growth is achieved through education and increasing human capital. He cautions that such a supply-side effort must be
matched with increasing demand for skilled labour domestically.
Education and human

capital development
2.2.3 Revenue-Grabbing and Rent-Seeking

Resource rents alter
Caselli and Cunningham (2009) propose a distinction between two political mechaincentives for elites and
nisms that generate the resource curse: Centralized mechanisms focus on the incenprivate actors
tives and constraints faced by the political elite, de-centralized mechanisms are
essentially rent-seeking. The authors refer to centralized mechanisms when resource
rents accrue to the government. The political elite faces incentives and constraints by
resource revenues. This has an effect on growth as non-resource GDP depends in
part on some inputs provided by the leader. An example is the provision of public
goods such as law and public contract enforcement, infrastructure, health and
education. The authors speak about de-centralized mechanisms when resource rents
can be siphoned by individuals, more commonly known as rent-seeking. Resource
rents change the incentive structure for private individuals, causing them to reallocate
efforts from productive to unproductive activities.
2.2.3.1 Centralized Mechanisms: Leadership and Accountability

Royalty management In developing countries, natural resource extraction and commercialization take place
under two typical arrangements, which generate resource revenues for the elite: (1)
the government issues a concession to a foreign company to extract and sell the
resource. The flow of royalties is in normal circumstances a proportion of the value of
the sales. (2) A resource-rich country exploits its revenue through a governmentowned company. In both cases, the elite faces two choices: It can use the revenues for
its own enrichment, or for investment that improves the growth and development
prospects of the country.
Resources as sources Robinson et al. (2006) find that natural resource rents alter the behaviour of political
for power elites by increasing the value of being in power, leading to an increase in spending for
power-preserving activities. Caselli and Cunningham (2009) argue within their

mathematical model that there are ambiguous effects on non-resource growth. The
two main triggers which they isolated increased value of staying in power and
increased likelihood of a challenge for political control have the potential of
pushing a leaders investment in pro-growth policies either up- or downwards. If
checks and balances work and oversight institutions are strong, the policy space for
leaders to enrich themselves is much smaller. Where checks and balances are weak,
the result will be a misallocation of resources in the economy and a negative impact
on economic growth.
High rents lead to In their quantitative study, Bornhorst et al. (2009) focus on the relationship between
lower taxes and natural resource endowments and the domestic (non-resource-related) revenue effort
less accountability in natural resource-rich countries. More specifically, they look for evidence of an
offset between government revenues from hydrocarbon- (oil and gas) related activities
and revenues from other domestic sources, using a panel of 30 hydrocarbon producing countries. They find that there is an offset of about 20 percent: A one percent
increase in resource revenues reduces non-resource revenues by about 0.2 percent.
The authors do not explain why this reduction takes place; McGuirk (2010) offers an
answer. He takes a closer look at taxes and accountability, finding in his quantitative
study that in the presence of high natural resource rents, the political elite lowers the
burden of taxation on citizens in order to reduce accountability. Thus, taxation is an
important tool for engaging citizens, for increasing scrutiny, and the demand for
accountability. According to Collier (2006: 1484), Scrutiny is a public good, the
supply of which is commonly provoked by the tax burden. The lack of scrutiny in
countries with large resource rents makes it easier for public revenues to be diverted
into patronage.
Depletion of resources Weinthal and Luong (2006) also argue that countries rich in minerals and/ or oil rely
without replacement of on external revenues. Heller (2006: 25) summarizes that economic rents generated
capital stock from the export of minerals and petroleum induce governments to rely on such
flows instead of having to impose taxes on corporate and personal incomes, to allow
exchange rates to appreciate so as to dampen manufacturing and agricultural exports,
to overspend in periods of high resource prices, and to deplete natural resources
without replacing the declining capital stock.
2.2.3.2 De-Centralized Mechanisms: Rent-Seeking

There is a multitude of quantitative studies on the intermediate variable rent-seeking Institutions, property
rights and statehood
(Auty 1990; 2001, 2007, 2009; Torvik 2002; Gylfason 2004). Windfall resource rents
accrued from a mineral or oil boom being concentrated and easily obtained tempt have significant effects
individuals to engage in rent-seeking competition rather than productive economic
activities. This is the case particularly in conjunction with ill-defined property rights,
imperfect or missing markets, and lax legal structures in many developing countries.
In low-rent countries, on the other hand, the government has to motivate people to
create wealth, for example by pursuing comparative advantage, promoting equality,
and fostering civil society. Rent-seeking can breed corruption, thus distorting the
allocation of resources and reducing both economic efficiency and social equity. It
can also lead to a concentration of economic and political power in the hands of a
few, who skew the distribution of income and wealth in their favour. Van der Ploeg
(2010) finds that dysfunctional institutions and poorly-defined property rights lead to
a classical commons problem whereby there is too much grabbing and rapacious
rent-seeking of natural resources.
Some observers argue that the type of resource matters: Isham et al. (2004), for
example, find that the commodities that are damaging to institutional development
are point-source resources, which are locally concentrated, such as oil, other
minerals, plantation crops and coffee. Sala-i-Martin and Subramanian (2003) and
Bulte et al. (2005) also find that point-source resources such as oil and some particular minerals undermine institutional quality and thereby growth, but not agricultural
resources. Mehlum et al. (2006) observe the distinction by designating them lootable resources. Arezki and Brckner (2009) find that oil rents increase corruption.
Overall, a transparent and self-disciplinary mechanism is needed to manage natural
resources properly.
2.3 Some Problems with Quantitative Cross-Country Analyses

According to the literature, can we be sure about a negative relationship between
resources and economic growth? The answer is: Not quite. Some economists question
the direct link between resource wealth and economic growth. And in fact, the
findings become somewhat inconclusive, when (1) alternative measures for resource
wealth are used other than resource exports to GDP, and (2) the studies differentiate
between resources. According to Davis (2009: 13) it now appears that the resource
curse was either a spurious statistical artefact or a result of a depleting resource
sector. Lederman and Malony (2008: 3) argue that natural resource abundance is not
Statistics negate a
direct and negative link
between resources and
economic growth
characterized by a negative central tendency and that we would do well to exorcise

the curse from the economic discourse. The authors criticize the econometric
evidence in favour of the resource curse hypothesis for being based on weak proxies,
both for the dependent as well as for the intermediate variables.
Ambiguous results from The first criticism arises regarding the way natural resources are measured
cross-country studies (Karabegovi 2010): When natural resources are more precisely measured, for
example, in terms of natural resource capital per capita instead of primary commodity
exports as a percentage of the economy the resource curse disappears. Brunnschweilers cross-country regression estimations (2006), for example, show no evidence
of a negative growth effect of natural resource abundance. Using new measures of
natural resource wealth, she instead finds a positive association with economic
growth over the period 19702000. Contrary to most of the resource-and-growth
literature, the positive impact of resource wealth on growth is consistently significant
when focusing on mineral resources. Lederman and Maloney (2003) also find positive
growth effects using the share of primary commodity exports in total exports and
primary commodity exports over total labour force. The results are also inconclusive
when mineral production over GDP is used as variable: Davis (1995) finds a positive
relationship with economic growth, while Papyrakis and Gerlagh (2004) find both
positive and negative growth effects, with the negative ones prevailing.
Resource type matters The second criticism is voiced with regard to the resource type: Some resources
have stronger effects on economic growth than other. The reasons for this is that
some of the primary commodities are high-yield or high-rent resources, such as
diamonds, fuel, and non-fuel minerals, and are thus more likely to have a negative
impact on economic growth and the quality of institutions. This is most likely
because they create more incentives for corruption and rent-seeking than agricultural resource endowment. Isham et al. (2004) differentiate between point-source
resource extraction, characterized by intensive production, and more diffuse
resources, characterized by extensive production. Countries which depend on the
former often show evidence of worse economic performance and institutions than
countries which are more dependent on the latter. Sala-i-Martin and Subramanian
(2003) find ambiguous results when disaggregating resource exports into agricultural, fuel, and non-fuel mineral products. A third critical restriction of the general
findings lies in the applied method. For example, some studies found that analyzing
data over time, rather than using averages of the data over the same period, eliminates the resource curse.
2.4 Individual Country Case Studies: Taking a Closer Look at West Africa
Many researchers caution that cross-country regression analyses might oversimplify
and over-generalize the causalities behind the resource curse. Obi (2007), for example, criticizes that the resource curse concept does not adequately capture the histories, contradictions, and various interests and processes at work in Africas complex
conflicts. In the following section we will therefore take a closer look at individual
case studies, which offer a deeper understanding of national specifics, history,
path-dependencies, and cultural and political aspects of the resource curse. These
studies differ widely in their approach, and one must be very careful about generalizing their findings. Most of them are qualitative in nature, placing an emphasis on
developing policy recommendations. In the following, we will present a selection of
these studies to highlight some interesting findings.
Exemplary for countries with pronounced features of the resource curse, we have
selected Nigeria, Equatorial Guinea, and Sao Tom and Principe for their oil reserves
and Sierra Leone for its diamond reserves. As Beaulier and Subrick (2007) summarize, experiences are very similar in countries with rich endowments of natural
resources in Sub-Saharan Africa: governments pursue short-sighted, predatory
policies that guarantee long-run economic stagnation. The authors used Nigeria and
Angola as examples for oil-rich countries. In the first case, they identify overtaxation
and nationalization of the oil industry as the reason for economic failure. In the
second case, reliance on oil caused economic imbalances and unsustainable fiscal
policies. Diamonds in Sierra Leone are the third example used to show negative
effects of resource wealth. As a result, poverty persists and human capabilities remain
limited. The consequence is often instability and conflict. In his 2007 study Africa
and Natural Resources, van der Ploeg argues that it is not very surprising that
African countries often follow a staple-trap path with growing inequality and slow
accumulation of capital given the economic and political environment: Many African
countries have a predatory state, little international trade, few incentives for development of capital, weak linkages between the natural resource and other sectors of the
economy, and a lack of economic diversification into competitive manufacturing
industries. An exception is Botswana. As a representative for countries that have
mastered the risks of the resource curse, we summarize a few studies analyzing
Botswanas experience. Ghana belongs to a third group of countries which have
recently discovered large resource reserves and are warned about the risks of the
resource curse.
Selected case studies on

oil and mineral resources
2.4.1 The Resource Curse: Cursed by Oil and Diamonds?

Equatorial Guinea: Oil Equatorial Guinea: McSherry (2006) tests the assumptions of the resource curse with
caused Dutch disease effects a qualitative case study on Equatorial Guinea, which is one of Africas newest oil
producers. He finds: (1) While declining terms of trade have not yet affected
Equatorial Guineas oil industry, the economy is becoming centred around oil
production to such a degree that future declines in the terms of trade would prove
devastating to the EquatorialGuinean economy. (2) The very volatile nature of oil
markets suggests that fluctuations may prove dangerous for Equatorial Guinea in
the future unless the countrys leaders can adopt effective policies to counter these
effects. (3) The oil industry in Equatorial Guinea remains, essentially, an enclave
with little impact on the rest of the economy such as infrastructure and human
development. (4) There are clear signs of Dutch disease. Weinthal and Luong
(2006) agree with the finding that oil has crowded out other export goods: Cocoa
and coffee have declined from approximately 60 percent of GDP in 1991 to less
than 9 percent of GDP in 2001. Frynas (2004) also finds that the oil industry has a
very limited impact on employment creation. Not only is the oil industry highly
capital-intensive, it also requires fewer workers. In addition, the vast majority of
employees are expatriates and immigrants.
Nigeria: Deficits in
revenue management,
missing accountability
and corruption
Nigeria: Sala-i-Martin and Subramanian (2003), Oyefusi (2007), Obi (2007), Mller
(2010), and Watts (2010) focus on Nigeria, the largest oil producer in Sub-Saharan
Africa and the fifth largest exporter in the OPEC. As many other oil-producing
countries, Nigeria has experienced recurring violent conflicts associated with the
management of its resources. Despite the fragile peace since the 1990s, the Niger
Delta, where almost all the countrys oil and gas reserves can be found, has been
marked by conflict. According to Oyefusi (2007), violence in the Niger Delta alone
has entailed 1,000 casualties per year between 1999 and 2004. Notwithstanding the
latest oil boom, the country has remained poor, experiencing low growth rates and
high levels of poverty. Nigeria shows many signs of Dutch disease: The economy is
unstable and substantially vulnerable to price fluctuations. In addition, the oil boom
of the 1970s has led to a neglect of non-oil tax revenues, an expansion of the public
sector, and deterioration of fiscal discipline and accountability. Oyefusi asks two
questions: (1) Why has oil wealth failed to translate into economic growth and
rising living standards? (2) Why has oil become a catalyst for violent conflicts in the
country? To answer these questions, he analyzes the underlying economic, social,
and cultural structures in the country. He finds the answer to both questions in
institutional quality, in particular the absence of a requirement for community
participation in the planning and development of oil activities, corruption, inadequate property rights and compensation of damage to property, and the lack of
enforcement of environmental regulations. Revenue allocation arrangements in
Nigeria have been unstable and accommodated by distrust, inadequate information
flows, and uncertain accountability.
Social structures at the

Sala-i-Martin and Subramanian (2003) also find clear signs of the resource curse. As
local level matter
Oyefusi (2007), they view low institutional quality as the main culprit. In their
opinion, oil waste and corruption rather than Dutch disease have been responsible for
poor long-run economic performance. In their econometric study they do not find
that natural resources impact economic growth directly. However, their institutional
regression shows an entirely different picture: Institutions determine whether or not
the effect of resources on growth is positive. With regard to Nigeria, the authors
argue that oil wealth has not only been squandered but has fundamentally altered
politics and governance in the country. Poor institutional quality in Nigeria has
contributed to lower long-run growth of 0.5 percent per year. Mller (2010) agrees
with this finding, arguing in her study of the Niger Delta that a lack of transparency
and accountability was partly responsible for the negative consequences of oil
extraction. She finds five interlinked factors which pose a problem: (1) the centralization of the management of oil extraction, (2) a flawed federal structure, (3) weak state
authority, (4) a lack of transparency, and (5) the continued undemocratic management
of oil resources since 1999. Accordingly, she argues that revenue transparency
initiatives, such as the Nigeria Extractive Industries Transparency Initiative (NEITI),
could mitigate the resource curse.
Obi (2007) draws similar conclusions from her study on Nigeria, pointing out that
the lessons learned are also relevant for other oil-rich African countries, such as the
Sudan, which share similarities including a multi-ethnic composition, regional and
religious cleavages connected to the legacy of colonial administrative policies,
prolonged periods of military rule, and elite-dominated politics. In both countries,
Nigeria and the Sudan, oil played a critical role in post-civil war reconstruction,
reconciliation, and national unity. Watts (2004) also takes a closer look at social
structures at the local level. To him, the presence and activities of the oil companies
constitute a challenge to customary forms of community authority, inter-ethnic
relations, and local state institutions, principally through the property and land
disputes that are engendered, via forms of popular mobilization and agitation. These
political struggles are animated by the desire to gain access to (1) company rents and
compensation revenues, and (2) federal petro-revenues by capturing rents, (often
fraudulently) through the creation of new regional and/ or local state institutions.
According to Obi (2007), there are three lessons to be learned from Nigeria: (1) The
capacity of national management of the oil industry is a key element of being able to
harness oil wealth for national development or transformation. (2) The relationship
between the state and the oil industry is fundamental to the questions of who gets
what, when and how much. (3) Inequitable distribution of oil wealth lies at the centre
of conflicts, and becomes even more prevalent, when locations of oil reserves coincide with historically defined cleavages among ethnic/ religious identites, relations of
domination and marginalization.
Lessons learned: Enhance

capacity, public-private
partnerships and equal
distribution
Monitoring to Sao Tom and Principe: In his study Does Oil Corrupt?, Vicente (2010) assesses the
contain corruption role of natural resources in determining corruption (political resource curse). He uses
a natural experiment framework, contrasting Sao Tom and Principe (a low income
West African island country, neighboured by the resource-rich countries Equatorial
Guinea, Gabon, and Nigeria) to Cape Verde, a West African country with a similar
colonial past as well as economic and political shocks. The author conducted household surveys in both island states, analyzing changes in the perceived corruption
across a wider range of public services and allocations after significant oil discoveries
were announced in the period 19971999. He finds a clear increase in vote-buying,
education (in form of awarding scholarships), state job allocation, state licences, and
customs. Sectors of primary importance to the political elite of the country saw the
clearest increases in corruption, in particular in vote-buying. With his study, the
author highlights the need to monitor the political sphere of a country in the face of
an oil discovery.
Diamonds as a potential Sierra Leone: Sierra Leone is a country blessed with large diamond and hard mineral
chance for development in reserves. But as Beaulier and Subrick (2007) explain, the government used diamond
Sierra Leone revenues to support militia groups and party loyalists after its independence in 1961,
instead of building infrastructure and supporting its citizens. Increasing poverty

perpetuated the cycle of violence and continued a downward economic spiral. Today,
Sierra Leone is one of the poorest countries in the world. Maconachie and Binns
(2007) also take a closer look at Sierra Leones diamond mining, development and
post-conflict reconstruction. While according to the majority of the literature,
diamonds played a key role in fuelling the brutal civil war during the 1990s (coining
the term blood diamonds), the authors argue that diamonds, if managed well, could
actually provide an impetus for post-war reconstruction and reconciliation. At the
same time, they caution that sustainable development can only be achieved, if future
policies are based on a detailed understanding of relationships between diamond
mining and rural development at local, regional, and national levels. Olsson (2006)
points out in a comparative case study that Sierra Leone is not the only country that
struggled under its diamond wealth. Diamonds are known to have played a central
role in the civil wars of Angola, Liberia, and the DR Congo. The reason why diamonds often become objects of predatory struggle lie in their characteristics: They
have an extremely high average price and a small practical size, which makes them
suited for smuggling. In addition, mining in western and central Africa can be carried
out by virtually anybody because it is labour-intensive and requires simple technology.
De Koning (2008) cautions that Sierra Leone has still a long way to go and faces
many governance challenges, despite some progress. For example, the country had
signed up to the Kimberly Process in 2003 and had put in place a Diamond Area
Community Development Fund (DACDF). In his qualitative, comparative case study,
the author highlights several problems: Diamonds exported by licence holders still
form only a portion of the total value of national diamond production. Diamonds
from unlicensed mines and stolen diamonds from licensed mines in Sierra Leone
enter the legal trade. In addition, rural unemployment, as a result of unequal access to
land, pushes masses of young people to diamond mining areas, keeping wages low
and enabling labour exploitation by local elites, licence holders, and other investors.
2.4.2 Exceptions to the Rule?

Botswana: Botswana has managed to beat the resource curse. Although about 40
Model student: Botswana
percent of Botswanas GDP stems from diamonds, it has the second highest public
expenditure on education as a fraction of GDP, a very high growth rate, and a GDP
per capita that is ten times that of Nigeria. Beaulier and Subrick (2007) argue that
Botswana is not merely an anomaly with regard to the resource curse but that the
country helps development economists and policy-makers understand how an
institutionally weak country can develop in the presence of significant natural
resources. They find that the secret to overcoming the resource curse is rather simple:
good institutions and good policies. When diamonds were discovered in Botswana,
good institutions (such as secure property rights) and sound economic policy developed alongside increased government revenues from diamonds. Unlike in other
resource-rich countries, the government did not pursue predatory policies. This is
even more surprising given the fact that Botswana did not have strong institutions to
start with. Beaulier and Subrick (2007) do not attribute this development to mere
chance, rather they single out government willingness, skill, and foresight, which
determined fiscal behaviour. For example, despite revenues from diamonds, the
government continued to rely on internal taxation for its income. The authors
attribute Botswanas success story to three unique factors: (1) Indigenous conditions
in tribal lands of Botswana led to less corruption and a more favourable environment
for rule creation. (2) Timing worked in favour of Botswana. The country did not
build its early National Development Plans with knowledge of vast diamond reserves.
(3) Botswana is characterized by toleration. This is similar to the findings by Acemoglu et al. (2002), who point out that Botswanas good institutions, particularly in the
private property area, stem from its pre-colonial political institutions, limited British
colonialism, strong political leadership since independence, and the elites motivation
to reinforce institutions. Moss and Young (2009) highlight that the country has used
its wealth to invest heavily in infrastructure, education, and health. The authors warn,
however, that success is not easily replicable.
Good governance, transIimi (2006) largely agrees with this finding. In his quantitative case study, he finds
that governance determines the extent to which the growth effects of resource wealth parency, accountability
can materialize: the quality of regulation, such as the predictability of changes of
regulations, and anticorruption policies, such as transparency and accountability in
the public sector, are most important for effective natural resource management and
growth. In Botswana, corruption in the public sector is not a serious problem. The
budgetary and procurement process is relatively transparent. He recommends among
others: (1) explicit fiscal rules for the treatment of mineral revenues any windfall
should be deposited in a special account and used for designated economic and
social development ; (2) disclosure of the terms of contracts and profit-sharing
arrangements with natural resource developers as well as publication of independent external audits (for better transparency); (3) strict regulation of resource
contracts; (4) de-centralized resource management, which reduces the capacity of
the central government to run countercyclical fiscal policies and to arrange equalization transfers among regions.
Prospects for Ghana: Oil Ghana: Several authors, including Cavnar (2008), Moss and Young (2009), Kapela
as a chance or risk? (2009), Gary (2009), and Zounmenou (2009), ask whether Ghanas New Oil is
cause for jubilation or prelude to a resource curse. Ghana is, measured against the
variables peace and stability, democracy and governance, control of corruption,
macroeconomic management, poverty reduction, and signs of an emerging social
contract, quite a story in Africa. The authors warn, however, that the arrival of
considerable oil revenues beginning in 20112013 threatens to undermine recent
progress within the country. While Ghanaians have been rejoicing over the countrys
oil discovery, scholars warn that finding oil can actually lead the country into trouble.
Dagher et al. (2010) use a multi-sector dynamic general equilibrium model to analyze
the likely impact of oil windfalls on the Ghanaian economy, under alternative fiscal
and monetary policy responses. They find that Dutch disease can be avoided: the
impact on inflation and the real exchange rate can be moderated if the fiscal authorities smooth oil-related spending or increase public spending. However, a policy mix
that results in both a fiscal expansion and the simultaneous accumulation of the
foreign currency proceeds from oil would raise demand pressures and crowd-out the
private sector. Moss and Young (2009) recommend direct cash distribution of oil
revenues to citizens as a potentially powerful approach to protect and accelerate
Ghanas political and economic gains, and a way to strengthen the countrys social
contract. (For a discussion of these recommendations see Part D of this survey).
2.5 Conclusion
Resources can be a
The relationship between natural resources and economic growth is controversial
among researchers throughout the world. There is both evidence for a negative and chance for development
and growth
a positive effect of resource wealth on growth. As the OECD (2009) points out in
its study Natural Resources and Pro-Poor Growth, natural capital can contribute
directly to economic incomes, employment, and fiscal revenues. Natural resources
can also underpin the livelihood of many poor people. Furthermore, natural
resources generate a wide range of positive externalities at the local, national, and
global level. Accordingly, economists in general do not recommend that countries
abstain from exploiting their natural resources (Frankel 2010). As Davis and Tilton
(2005: 233) conclude, the appropriate public policy question is not should we or
should we not promote mining in the developing countries, but rather where should
we encourage it and how can we ensure that it contributes as much as possible to
economic development and poverty alleviation. Nevertheless, there are many
examples of countries which were not able to utilize their resource wealth to
achieve higher growth rates, higher per capita income, and lower poverty rates.
There is a high risk that resource wealth becomes a curse rather than a blessing. A
large body of literature is devoted to the question of when natural resources can be
instrumental in spurring growth and when negative effects prevail. Frankel (2010)
argues that resource-rich countries can succeed, but the question is how to make
best use of the resources. Frankel (2010: 12) phrases this quite bluntly: The goal is
to Norway rather than Nigeria. The same point applies to precious minerals: the
goal is to be Botswana rather than Bolivia, a Chile rather than a Congo.
The answer lies mostly in institutional quality and a governments ability to formulate
and implement sound and effective resource management policies. Humphreys et al.
(2007) find in their edited volume Escaping the Resource Curse of mostly qualitative, policy-oriented studies that due to increasing demand for energy in China and
India, and instability affecting key oil producers in the Middle East, there is an
increasing interest in new oil-producing countries. These producers such as Sudan
and several West African countries are characterized by poverty, civil conflict, and
political instability. For these countries, absorbing substantial new capital inflows
without succumbing to civil disorder or corruption poses a challenge. According to
them, it has now been recognized that transparency and accountability are the
remedies for overcoming the resource curse. The OECD (2009: 18) postulates that
to ensure that natural resources help not only support but also sustain growth, they
need to be used efficiently, equitably and sustainably. As individual countries
experiences differ widely, analysis and recommendations need to be country-specific.
We will return to the issue of resource management and appropriate policies within
part D of this study.
Institutions determine failure or success of

resource governance
Artisanal diamond mining in social misery in Tongo-Fields, Sierra Leone (Picture: GIZ, Kristian Lempa).
Natural Resources and Conflict 37

Natural Resources and Conflict
Is there a scientifically robust relationship
between natural resources and the onset
of conflict? Is this relationship positive
or negative? Which factors contribute
to a positive or negative relationship?
1. Introduction
For decades, researchers have analyzed the relationship between natural resources and
conflicts asking if, when, and under which conditions such a link can be established. In
the past 30 years, two schools of thought have evolved: One identifies scarcity of
natural resources as source of conflict, while the other one concludes the opposite,
seeing abundance rather than scarcity as a potential driver of conflicts. This debate
takes place under the header greed versus grievance.
During the first phase of this research, scholars mainly focused on population and
environmental degradation as cause of scarcity. A starting point for more recent
supportive as well as critical papers is a research project by a group around Homer-Dixon (1994, 1999), the Canadian Environmental Change and Acute Conflict Project.
When does resource depletion

curtail economic growth?
At the same time, the Swiss Environment and Conflicts Project, led by Bchler et
al. (1996), examined the relationship. The projects developed models for examining
the relationship between resource scarcity and conflict. While some researchers found
a positive relationship (Homer-Dixon 1994; Bchler et al. 1996; Hauge/ Ellingsen
1998; Raleigh/ Urdal 2007; Urdal 2008), others were not able to confirm a direct
causality. The former believe that scarcity causes conflict because it perpetuates
grievances. From a neo-Malthusian6 point of view, scarcity arises from population
growth or increased population density. This relationship is questioned, however, by
those who present contrary cases to the allegedly imperative connection. Critics of
the neo-Malthusian approach either argue that there are too many intervening
non-environmental variables to establish such a link (Le Billon 2001; Bates et al.
2003; Giordano et al. 2005; Theisen 2008; Brown 2010) or, as in the cornucopian
tradition7, that absolute scarcity rarely exists because of, foremost, technological
innovation (Boserup 1965; Simon 1996; Lomborg 2001; Juul 2005; Mortimore 2005).
The overall question has become salient again regarding climate change-induced
scarcity (Barnett/ Adger 2007; Reuveny 2007; Hendrix/ Glaser 2007; Raleigh/ Urdal
2007; Meier et al. 2007).
Abundance and conflict
Around the turn of the century, some scholars, such as Collier and Hoeffler (1998),
Le Billon (2001), and de Soysa (2002a, 2002b), while looking for conditions of a
scarcity-conflict-link, discovered a possible relationship between resource abundance
and conflict (the resource curse). Advocates of this school of thought (Collier/
Hoeffler 1998, 2004; Fearon/ Laitin 2003) identified two causal mechanisms: First,
resource abundance poses an opportunity to finance rebellion (looting-rebels model)
and, second, resource abundance fosters weak states, which perpetuate grievances
(state capacity model). In the meantime, more mechanisms have been identified
6 Scholars following the neo-Malthusian tradition assume that population growth reduces the availability of natural
resources. Competition over increasingly scarce resources can destabilize a society and cause violent conflict. Malthus (1798),
in his Essay on the Principle of Population, theorized that while populations grow exponentially, food production only
increases linearly, eventually resulting in population collapse at the point where the earths carrying capacity is reached.
Homer-Dixon (i.e. 1999) is often cited as this perspectives most popular representative.
7 In contrast to neo-Malthusian theory, cornucopian scholars are convinced that resource scarcity does not occur because
people are able to substitute resources or invent new technology making an apparently scarce resource abundant. In the
extreme, scholars assume the earths resources to be infinite. Cornucopia, meaning horn of plenty, is an expression from
Greek mythology, which stands for endless supply of food and drinks. Simon (1996) is usually referred to in this context.
38 Natural Resources and Conflict
(Humphreys 2005), and resource as well as conflict characteristics have been

specified (Ross 2003, 2004; Collier et al. 2004; Fearon 2004; Auty 2004; Le Billon
2005; Basedau/ Lacher 2006; de Soysa/ Neumayer 2007; Welsch 2008; Lujala
2009). Because there are studies contesting the relationship between resource
abundance and conflict (Regan/ Norton 2005; Brunnschweiler/ Bulte 2009;
Thies 2010), more research is dedicated to clarifying intervening variables
(Snyder/ Bhavnani 2005; Snyder 2006; Dunning 2005; Basedau/ Lacher 2006;
Franke et al. 2007; Sarr/ Wick 2010).
Definitions of scarcity The literature shows that it is difficult to draw a distinct line between resource scarcity
and abundance and abundance as cause or accelerator of conflicts. First, most resources are not
characterized by absolute scarcity. Most resources can be substituted apart from a

few existential resources such as land and water , many are renewable, and many of
those that are non-renewable can be recycled. What matters more than absolute
scarcity is relative scarcity, i.e. the distribution of resources and access to them.
Likewise, absolute abundance rarely exists. In general, throughout the literature,
resources are considered abundant when they are plentiful in a given region, nonrenewable, and potentially sources for high profits. On the global level, however, they
are often in high demand, and produce high prices. While abundant on the local level,
they are scarce on the global level. For abundant resources to play out their role as
potential cause or accelerator of conflicts on the local level, global scarcity is even a
precondition. Here again, relative and not absolute abundance is therefore the factor
which matters.
Differentiation between risks If everything is a matter of context, how can relative scarcity and relative abundance
of scarcity and abundance be distinguished? The literature does not provide a satisfactory response. Often it is
more the type of resource that determines the course of discussion or the influences
on conflict: Relative scarcity studies generally deal with renewable and widespread
resources that require a lot of labour input for production; relative abundance studies
mostly consider non-renewable and concentrated resources with little labour input in
production. Furthermore, when scarcity and conflicts are linked, scholars usually
discuss the sources of scarcity, that is, population growth and environmental degradation, institutional failure, or unequal power relations. Abundance is frequently
mentioned when discussing the ways in which a resource might affect conflict, that is,
a resources effects on rebel recruitment or state capacity.
Definition of conflict The term conflict requires specification as well. Quantitative studies usually include a
variable that refers to violent incidences between two or more groups, one of them
being the government, causing several annual battle deaths. Sometimes, other
dependent variables are used to capture conflicts without government involvement.
Qualitative studies employ a broader understanding of conflict. Ranging from
demonstrations and raids to insurgencies and wars, this complexity makes an analysis
and a subsequent generalization of findings more difficult. Although non-violent

conflicts can easily escalate to violent ones, the following analysis concentrates on
violent conflicts for better comparability. Most studies tend to concentrate on violent
conflict on the local level, sometimes including conflicts with neighbouring countries.
In general, unambiguous causal chains have, so far, not been established in either the
scarcity or the abundance discourse. Economists like to approach the issue with
quantitative studies and generalized variables that include as many cases as possible,
other social scientists attach importance to qualitative studies and individual cases. As a
consequence, policy recommendations depend on the perspective one tends to support.
Preliminary results
2. Resource Scarcity and Conflict

How resource scarcity can cause conflict
Dependent variable I
Population Growth
and/or Environmental
degradation
Institutional Failure
Dependent variable II
Violent/ Nonviolent Conflict,

Absolute/ Relative
Resource Scarity
Domestic/ International Conflict
Unequal Power Relations
Throughout the literature, the majority of scholars identifies resource scarcity as a

possible, if not likely cause of conflict. Debates centre on the question of how scarcity
evolves. Three causal mechanisms can be identified: First, increasing demand, due to
population growth and decreasing supply caused by environmental degradation,
determine scarcity; second, the absence of formal and informal rules in situations of
environmental deterioration aggravates competition over resources because allocation
problems cannot be solved with appropriate institutions; and third, longterm cultural, economic, and political processes are presented as the main reasons
why conflicts over access and control arise. According to these mechanisms, scarcity
is a problem of an underprivileged group that might revolt due to unequal distribution of essential resources. Once absolute or relative scarcity is perceived, violent
incidences become likely. Some scholars argue, however, that looming scarcity can
also result in cooperation and improved outcomes (Boserup 1965; Simon 1996; Juul
2005; Mortimore 2005).
Reviewed Causal Mechanism
Relationship between
Resource Scarcity and
Violent Conflict
Qualitative Studies
Population and Environmental

Degradation
Positive
Homer-Dixon (1994, 1999),

Bchler et al. (1996),
Homer-Dixon and Percival (1998),
Goldstone (2001),
Klare (2001),
Selby (2005),
Barnett and Adger (2007),
Reuveny (2007),
Gleditsch, Nords, and Salehyan
(2007)
Hauge and Ellingsen (1998),

Tir and Diehl (1998),
Maxwell and Reuveny (2000),
Urdal (2005),
Raleigh and Urdal (2007),
Hendrix and Glaser (2007),
Urdal (2008)
Negative
Boserup (1965), Simon (1996),

Lomborg (2001), Juul (2005)
No relationship
Haftendorn (2000), Lonergan

(2001), Canter and Ndegwa (2002)
Bates et al. (2003),

Binningsb, de Soysa, and Gleditsch (2007),
Meier, Bond, and Bond (2007),
Theisen (2008),
Brown (2010)
Institutional Failure
Positive
Tyler (1999),
Bennett et al. (2001),
Giordano, Giordano, and Wolf
(2005),
Acheson (2006),
Elhawary (2007),
Walton and Barnett (2008)
de Soysa (2002a),
Bardhan (2005)
Unequal Power Relations
Positive
Le Billon (2001),
Timura (2001),
Turner (2004),
Manger (2005),
Gausset (2005),
Boehm (2005),
Moyo (2005),
Mollett (2006),
Jewitt (2008),
Wittayapak (2008),
Benjaminsen and Ba (2009)
2.1 Population and Environmental Degradation as Sources of Scarcity

A starting point for all more recent supportive as well as critical papers regarding
natural resource scarcity and conflict is a research project by a group around Thomas
Homer-Dixon (1994, 1999), the Canadian Environmental Change and Acute
Conflict Project. At the same time, the Swiss Environment and Conflicts Project,
led by Gnther Bchler et al. (1996), examined the relationship. Both projects
approach the research question from a neo-Malthusian perspective.
According to Malthus theory (1798), there is an equilibrium between population and
resources. If a population grows, natural resources are degraded and depleted, causing
competition for increasingly scarce resources. Implicitly, resource scarcity, insufficient
supply in the presence of too much demand, is assumed to be absolute, threatening
means of existence. Scholars of this tradition tend to advocate a positive causality
between resource scarcity and conflict (Homer-Dixon 1994, Bchler et al. 1996;
Hauge/ Ellingsen 1998; Raleigh/ Urdal 2007; Urdal 2008). Neo-Malthusian
approaches are increasingly countered with the argument that there are numerous
other factors, apart from population growth and environmental degradation, leading
to scarcity. These other factors, in turn, determine whether a resource is becoming
relatively or absolutely scarce (Le Billon 2001; Bates et al. 2003; Giordano et al. 2005;
Gausset 2005). Finally, some researchers argue that the claim for a causal relationship
between resource scarcity and the incidence of conflict cannot be substantiated
(Binningsb et al. 2007; Meier et al. 2007; Theisen 2008; Brown 2010).

Populations Size and Environmental Degradation as Causes of Scarcity
Population Size/
Density/ Growth
Migration, Proportion of
young/ educated/
urban population
Proportion of Ethnic/
Religious Groups
Environmental
Degradations,
Climate Change
Short-term disasters
Resource Dependence
Inequality
Institutions
Innovation
Societys Capacity
Level of Economic
Development
Absolute/ Relative
Resource Scarity
Violent/ Nonviolent
Conflict
Domestic/ International
Conflict
2.1.1 Theoretical Foundations Linking Population and Environmental Variables to

Violent Conflict
Thomas Homer-Dixon (1994, 1999) developed a theoretical model from 16 case
A neo-Malthusian approach
studies. According to the model, scarcity is provoked by three sources: (1) degradation
and depletion of cropland, forests, water, and fish population growth, (2) increased
demand through either population growth or rising living standards, and (3) unequal
distribution of resources. These scarcities contribute to violent conflict in the form of
ethnic clashes, insurgency, banditry or coups dtats. All of the variables can interact
in two ways: resource capture describes the possibility that a dwindling supply of
renewable resources together with population growth produce scarcity and induce
powerful groups to shift resource distribution in their favour, leaving less and less for
poorer and weaker groups. The ensuing violence is caused by severe grievances.
Ecological marginalization involves ethnic clashes. An unequal distribution and population growth can trigger mass migration and, hence, resource degradation or depletion
in other regions. People native to the affected region might feel threatened in their
livelihood and use violence as a means to assert power.
Scarcity can cause three kinds of conflict: (1) between states, (2) group-identity
conflicts, (3) civil strife and insurgency. Empirical evidence at that time suggested,
first, that international conflict over renewable resources is rare. Second, that scarcity
can precipitate migration and ethnic conflict in the host area, depending on other
country-specific factors. Third, scarcity causes economic deprivation and ensues
conflicts, especially if institutions are not effective. Developing countries will suffer
more from scarcity and conflict because they have fewer means to alleviate grievances. In a case study of South Africa, Homer-Dixon and Percival (1998) test the previously developed model and hypothesize that pre-election turmoil was caused by land
degradation and fuel/ wood/ water scarcity in combination with high population
density. Admitting that other factors, such as ethnicity, strong group identities, and
the transition to democracy, have contributed to the conflicts, they conclude that
migration, scarcities in urban black communities, poverty, and warlord manipulation
of access exacerbated grievances and led to violence.
Causes of scarcity
Maxwell and Reuveny (2000) designed a mathematical model following neo-Malthusian theories. The authors definition of conflict ranges from strikes to war; they also
do not specify the resource variable except that they only consider renewable resources. They presume that there is an equilibrium between demand and supply of renewable resources that prevents resource conflicts. Following an external shock, such as
migration, technical innovation or weather conditions, which increases demand or
decreases supply, a threshold of per capita resources may be reached below which
violent conflict occurs. If there is more demand for a renewable resource than supply
of this resource, the likelihood of conflict increases. Conflict and resource scarcity
determine each other interdependently: while scarcity increases the likelihood of
conflict, conflict has an effect on supply, making resources even scarcer. On the one
hand, conflict can destroy a resource, on the other hand, it reduces harvesting by
diverting labour. At the same time, conflict also has effects on resource demand: it
reduces demand by increases of the death rate. On the basis of these assumptions,
Maxwell and Reuveny conclude that resource conflicts cannot last forever if they are
independent from external interventions. Interestingly and somewhat counterintuitively they argue that an increasing supply of resources during an existing conflict
can prolong violence. Thus, while an external shock that limits demand or increases
supply reduces the likelihood of conflict in peacetime, this higher resource growth rate
increases the duration of a conflict in wartime. Unfortunately, the authors do not
provide a clear causal mechanism for this particular finding. The following can be
speculated: If conflict reduces the resource stock so far that it threatens the survival
of human beings, conflict itself could not be sustained. These considerations focus on
developing countries for three reasons: First, people rely heavily on natural resources
in these countries, second, there is a lack of investment in research and development,
and third, institutions often malfunction, if they exist at all.
Qualifications Theories predicting violent conflict as a result of absolute resource scarcity are
criticized for their generalizations. Goldstone (2001), for example, points out that
independent variables relating to environmental change and population change, as
well as dependent variables relating to conflict have to be specified. He summarizes
empirical findings since 1970. Concerning environmental factors, he shows that
long-term degradation has not caused large-scale violence alone. More often, it was a
contributing factor in previously unstable areas that may have triggered conflict.
Short-term disasters with incompetent management by government agencies, in
contrast, have a significant impact on the risk of conflict. Furthermore, internal
violence is likely to erupt where resources are concentrated, scarce, and valuable.
Hence, resource control and exploitation are more relevant issues. Turning to population variables, Goldstone criticizes that it is not population growth or density per se
that causes violence. Instead, too much urbanization and education happening too
fast, a growing proportion of youth relative to the population, and unequal population growth of different ethnic groups, for example through migration, that changes
the power balance may contribute to domestic violent conflicts. Population growth
that causes domestic tensions can have effects on the risk of international wars.
Finally, dependent variables specifying conflict are not homogenous either. Not all
resource conflicts have to be violent. They are often resolved peacefully through
negotiations and compromise because armed conflict is often the most expensive
solution. Violent conflict would only put more stress on resources. Therefore, states
only mobilize armed forces when absolutely necessary. Non-violent conflicts are
particularly prevalent regarding ozone depletion, climate change, biodiversity,
preservation, and the allocation of freshwater. A growing and increasingly dense
population in combination with limited economic growth is generally the source of
violent conflict. Agrarian conflicts, which are common in Sub-Saharan Africa, often
erupt if land is controlled by elites and the labour force in agriculture is growing.
Violent conflict can also be the independent variable, causing demographic and
environmental changes.
2.1.2 Demand-Induced Scarcity and Violent Conflict

This section tries to identify a direct link between population variables and conflict.
Tir and Diehl (1998)
Special Issue on EnvironIn their collection Special Issue on Environmental Conflict, Tir and Diehl (1998)
analyze all countries in the international system between 1930 and 1989 quantitatively, mental Conflict
with population density and growth, geographic opportunity, military expenditure,
energy consumption (as an indicator for levels of development), and power status as
independent variables and with militarized interstate dispute, conflict escalation, and
conflict initiation as dependent variables. The results indicate that population growth
and density are only weakly related to escalation and initiation of a conflict. The most
meaningful statements can be made about the relationship between population
growth and conflict involvement. While population growth increases the risk of
conflict involvement independent of other factors, a combination with high military
spending makes it even more likely. Population density is only significant, when
coinciding with high military spending. Thus, overcrowding is not a single determinant of conflict. Multiple borders and high military spending are positively related to
conflict. High energy consumption is negatively related to it because it represents
technological development. Countries with high technological development may be
able to reduce effects of population growth and prevent conflict more effectively.
Countries classified as minor powers are especially vulnerable; major powers are in
general unlikely to experience conflict as defined.
Quantitative studies by Urdal (2005, 2008) show that population variables are not a
driver of conflict in a global analysis but that an analysis focusing on a particular area
can yield different results. In Urdal (2005), results are not robust for all sovereign
states and dependent areas in the period between 1950 and 2000. Armed conflict
onset is the dependent variable; population growth, potential cropland, urbanization,
and refugees are the independent variables. High population growth and land
Population as an areaspecific variable
scarcity, measured by population density, are significant and positive. But several
other variables can be better linked to armed conflict onset. A larger population,
intermediary regime types, recent conflict, slow economic growth, and a low level of
development are often a predictor of conflict. In a more recent study, however, Urdal
(2008) suggests that a lower level of analysis is more meaningful. He analyzes 27
Indian states between 1956 and 2002, including population growth, urban and rural
populations, religious composition and change, rural population density (in per capita
availability of productive land), agricultural yield (production divided by area), youth
bulges, linguistic fractionalization, inequality, poverty, and changes in agricultural
wages as independent variables and domestic armed conflict, political violence events
with at least one death, and Hindu-Muslim riots as dependent variables. Domestic
armed conflict is accelerated if the population in rural areas is dense, agricultural
wages are declining, urban inequality is high, youth bulges are increasing, the Hindu
population grows, and linguistic fractionalization is high. As other cross-sectional
studies show, contrary to Homer-Dixons theory about distribution, high urban
population growth and rural poverty decrease the risk of armed conflict. Levels of
development, expressed in literacy rates, do not have a significant impact. Political
violence events, forms of organized and unorganized armed conflict such as intercommunal violence, political assassinations, and rioting, are more common where
little productive land and high rural population growth are combined. The same is
true for low agricultural yields and land scarcity. Interestingly, youth bulges and
higher literacy rates also increase the number of violent events. Hindu-Muslim riots
are unrelated to population variables. Urban poverty reduces rioting, while short-term
reductions and long-term growth in agricultural wages, youth bulges, inequality,
religious fractionalization, and a non Hindu-majority increase the risk of riots.
Environmental degradation
and conflict
Bchler et al. (1996)

Environments and Conflict
Project
2.1.3 Supply-Induced Scarcity and Violent Conflict

It is admittedly difficult to draw a definite line between environmental degradation
and population growth as sources of scarcity. Decreasing supplies have effects on
peoples behaviour, and populations determine the remaining supply.
2.1.3.1 The General Picture
A theory focusing on scarcity as a consequence of dwindling resource supplies is
based on a second research project, the Environments and Conflict Project. Bchler
et al. (1996) summarize their theoretical and empirical results on degradation and
armed conflict in three volumes. The projects most important conclusion is that
degradation is neither the sole cause of conflict, nor merely an intervening variable.
Thus, degradation is a necessary condition for conflict, meaning that there is conflict
where the environment is deteriorating, but it is not the only causal factor, i.e. not a
sufficient variable. Many intervening variables determine the escalation of conflict: A
societys ability to take action, population growth, conflict situation, institutional
structures, and distribution of power. Land degradation in the form of excessive
cultivation, overgrazing, deforestation, and irrigation mismanagement have caused

violent conflict in the past, especially if other political, economic, and social factors
were conducive to the situation. Questions of absolute and relative water scarcity and
of water pollution have a less clear relationship with violent conflict than land
degradation. Technical solutions and peaceful negotiations are often preferred to
international water wars. An indirect relationship to domestic armed conflict, via
migration, is possible. The project concludes first, that degradation of renewable
resources contributes to violent conflicts in regions of political, economic, and social
instability where fault lines, for example along class or ethnicity, can be used to justify
conflict. Second, armed conflicts related to environmental degradation only develop if
several of the following conditions occur simultaneously: degraded resources are not
substitutable and people depend on them for their existence; powerful institutions
that could make sustainable use of resources possible are not present; degradation is
used by groups with special interests to construct group identities, organization and
armament is possible, or the conflict over resources takes place within another
conflict that is reignited.
A third, highly influential research project was launched by the International Peace
Research Institute in Oslo (PRIO). Some of its findings were summarized in the
Special Issue on Environmental Conflict (1998) by the institutes Journal of Peace
Research. Hauge and Ellingsen (1998) analyze environmental variables in the period
between 1980 and 1992. The second quantitative study by Tir and Diehl (1998)
concentrates on population variables between 1930 and 1989, which will be presented
in the following section. Hauge and Ellingsen (1998) use a mixed cross-sectional and
a pure cross-sectional analysis in order to measure the incidence and severity of
conflict, respectively. For the former, the dependent variables are domestic armed
conflict (between two or more organized parties, of which at least one is the government, with at least 25 annual battle deaths) and civil war (at least 1,000 annual battle
deaths). For the latter, it is battle deaths as a percentage of the total population. The
definitions for domestic armed conflict and civil war are used throughout this
analysis, unless indicated otherwise. Independent variables are the annual change in
forest coverage, land degradation, freshwater availability per capita, population
density, and income inequality. The level of economic development, type of political
regime, and political stability are controlled.
Special Issue on Environmental Conflict (1998)
The results of the mixed cross-sectional analysis are that conflict is very likely if a
conflict occurred the previous year and GDP per capita is low. High land degradation
has a positive effect on both the likelihood of civil war and armed conflict. The
variable semi-democracy is only significant in predicting civil war; the variables
deforestation and low freshwater availability are only significant with regard to armed
conflict. Except for high land degradation, which is significant in conflicts with more
than 1,000 total battle deaths, environmental degradation in general seems to play a
Resources reignite conflicts
role in small incidences of conflict with 251,000 battle deaths. In addition, population density is positively correlated, which was confirmed by Raleigh and Urdal
(2007). The pure cross-sectional analysis, producing results on the severity of conflict,
was not able to link the independent variables to the number of deaths. In a more
recent study, Theisen (2008), a research fellow at the International Peace Research
Institute, was not able to confirm Hauge and Ellingsens results completely. Only a
high level of land degradation increases the risk of armed civil conflict but economic
factors are more relevant. Replicated results suggest the need for a new analysis. In
Theisens own analysis, most population and degradation variables were insignificant
whereas regime change, the level of development, population size, and dependence on
oil exports prove relevant. Therefore, he rather supported the argument that poverty,
state strength, and institutional instability are related to conflict and raised the
question, whether it is scarcity or social distribution that leads to conflict.
2.1.3.2 Climate Change Induced Scarcity, and Conflict

Climate change, In the course of the climate change debate, environmental change as a factor for
scarcity, and conflict violent conflict has recently regained momentum. The journal Political Geography
published an issue called Climate Change and Conflict in 2007. Two contributions
are theoretical in nature, three develop their arguments quantitatively. The effects of
climate change, such as rising sea levels, floods, and drought, can significantly alter
the availability of natural resources, most importantly land and water, which are
crucial for agricultural production. Conflict may arise either directly in the battle for
livelihoods or indirectly as a consequence of migration.
Climate change-induced Barnett and Adger (2007) argue theoretically, that quantity and quality of natural
migration may cause conflict resources might be reduced in the wake of climate change. Exacerbated grievances
increase the risk of conflict because they give better recruitment opportunities for
rebel movements, especially in those countries where a majority of the population
depends on the primary sector for employment. Furthermore, mitigation efforts may
be impeded. If mitigation of climate change fails, migration is another logical
response according to Reuveny (2007). In this case, changes in population are the
consequence of environmental changes. He observes past effects of environmental
migration by assessing previous studies and comes to the conclusion that migration
can give rise to violent conflict through four different channels: (1) competition for
resources, (2) ethnic tension, (3) distrust among origin and host area, and (4) socioeconomic fault lines, for example along jobs. If two or more of them act together, the
risk of conflict increases. And if the receiving area depends largely on the environment for a livelihood, experiences resource scarcity, and additionally has to deal with
political instability, conflict becomes more likely. Reuveny assumes that costs of
climate change-induced migration and conflict will rise and, hence, proposes immediate action. Receiving areas should make an effort to rely less on the environment for a
livelihood and protect areas against sea level rise, preventing environmental degrada-
tion. Developed countries have an interest to go beyond immigration restriction in

the long run because they could avoid two confrontations: First, immigration restrictions fuel hostility against developed countries and provide good opportunities for
terrorism recruitment; and second, powerful developing countries demand more
adaptation and mitigation efforts from major polluters.
Gleditsch et al. (2007) add to the discussion that there are two ways in which climate
change, migration, and conflict are related. First, environmental disasters and
long-term environmental changes can exacerbate grievances and cause migration.
Conflict in the receiving area would be mostly unorganized and short-lived. As
examples from the past show, clashes between ethnic groups can be a result. Second,
increasing resource scarcity and deteriorating living conditions can trigger conflict
over resources, producing flows of refugees. The receiving area is more prone to
organized forms of violence, such as civil war, when admitting refugees of conflict
compared to environmental immigrants. This is because refugees bring along arms,
organizational structures, social networks, and ideas that expand armed conflict to
the receiving area. Mitigating resource competition, establishing representative
institutions, economic redistribution, and state capacity may therefore reduce the risk
of conflict, according to the authors.
The following two quantitative analyses in the Climate Change and Conflict (2007)
publication examine past impacts of water and land as well as population growth and
density on armed conflict and civil war in order to make predictions about the future.
Raleigh and Urdal (2007) conclude, using small geographical instead of political units
of analysis, that demographic and environmental variables had moderate effects on
the risk of conflict in the period between 1990 and 2004. The dependent variable is
domestic armed conflict. Freshwater scarcity, land degradation, and population
growth as well as density are counted among the independent variables. Considering
all countries, medium to high levels of land degradation and very high levels of water
scarcity increase the risk of conflict slightly. High population density has the strongest
effect on armed conflict. But it is not clear whether conflict is caused by population
density and environmental stress or whether conflict occurs predominantly in
population dense regions. Resource conflicts are more likely if population growth and
water scarcity or population growth and population density coincide. The likelihood
is further increased when political and economic variables are included in the model.
Broken down in low- and high-income countries, the authors suggest a threshold
effect. Lower levels of GDP and political instability in low-income countries increase
the risk of conflict. But while there are mixed results for the relationship between
scarcity and violent conflict in poorer countries, these variables are positive and
significant in wealthier ones. This counterintuitive finding is mainly due to a few
wealthy countries (Russia, Iraq, Serbia, Mexico, and Spain). Once these countries are
omitted, water scarcity and degradation become insignificant.
Access to and distribution Hendrix and Glaser (2007) hypothesize that there might have been long-term trends
of fresh water, not absolute and short-term triggers producing conflict in Sub-Saharan Africa between 1981 and
amount, causes the problems 2002. Furthermore, they look at predicted rainfall changes for 2000 to 2099 with the
help of a general circulation model (GCM), a mathematical model of atmosphere and

ocean flows, and compare them to current patterns. For the past analysis, long-term
independent variables are the climate suitability for Eurasian agriculture, land
degradation, and freshwater availability and the short-term independent variable is
percentage change in annual rainfall. Onset of civil war is the dependent variable. All
variables were significant but only if other economic, political, and demographic
factors are present. The short-term variable, percentage change in annual rainfall,
mattered more than the long-term variables. Increased rainfall reduced the risk of
civil war and decreased rainfall was more likely to trigger civil war. If the climate is
not suitable for large-scale Eurasian agriculture, conflict is more likely because
climatic conditions in tropical areas result in lower productivity and lower returns.
Land degradation and freshwater per capita are also positively related. Within the next
decades, total annual precipitation flux is expected to increase in Western Africa and
the Sahel and to decrease in Southern Africa. No statement can be made as to the
trends in interannual rainfall variability in Sub-Saharan Africa. Hendrix and Glaser
conclude that although rainfall patterns may not change significantly, dependence on
rain for agriculture should be reduced. All in all, it is suggested that access to and
distribution of freshwater seem to be the problems, not its absolute amount. Raleigh
and Urdal (2007) and Hendrix and Glaser (2007) come to the conclusion that land
and water degradation are positively linked to internal violence if other factors are
taken into account.
2.1.4 Contested Relationship between Supply- and Demand-Induced Scarcity

and Violent Conflict
Several renowned scholars are not able to confirm a positive relationship between
resource scarcity and violent conflict, while others claim that scarcity can easily
be overcome. A final section serves as a transition to the second part of this chapter, highlighting the role of institutions in successful mediation of international
water conflicts.
Scarcity as an The above findings are sometimes challenged by studies that question the importance
intervening variable of resource scarcity, reducing it to an intervening variable. Others come to different
conclusions because they utilize alternative independent and dependent variables. The
Political Instability Task Force is a large project by many researchers on the causes of
political instability. In its Phase IV Report, Bates et al. (2003) summarize the results
of quantitative studies that use global data from 1955 to 2002. They do not find any
significant relationship between environmental variables and political instability.
Political instability is primarily defined as sustained violent conflict in revolutionary wars,
ethnic wars, genocides, and politicides8, but also as regime change from democracy to
8 Bates et al. (2003) define genocides as violence by states against ethno-linguistic or religious groups and politicides as
violence by states against political opposition groups, resulting in a substantial number of deaths.
autocracy. Conflicts had to have at least 1,000 total battle deaths and at least 100
battle deaths per year in order to be considered. Environmental variables include
irrigated land, access to safe water, damage due to drought, cropland area, population
in rural area, and percentage of employment in agriculture. No direct relationship
between these variables could be found but they may influence political instability
indirectly by affecting the quality of life, regime type, or international trade. Of these
indicators, inconsistent regime types, with regard to political competition, face the
strongest risk of political instability. In Sub-Saharan Africa, limited democracies and
autocracies with some political competition, state-led discrimination against communal groups, civil or ethnic conflicts in bordering states, low levels of international
trade, new or entrenched leaders, and colonial heritage make instability more likely.
Population size and urban density had been excluded from the models because these
variables were not significant in the previous report.
High resource consumption
Binningsb et al. (2007) chose independent variables contrary to common practice
the so-called ecological footprint, biocapacity, and ecological reserve or deficit. The can foster peace
ecological footprint represents the demand of land and water for consumption and
production purposes in the consumer country, which, if subtracted from biocapacity,
is the ecological reserve or deficit. Biocapacity is the ecological supply. Drawing on a
cross-sectional dataset from the period between 1961 and 1999, neo-Malthusian
relationships between scarcity and conflict cannot be confirmed. Although declining
reserves indicate a higher risk of conflict, this result is statistically insignificant.
Increased supply and demand of resources both predict peace, notably the ecological
footprint, rather than small armed conflicts or wars. The effect of the ecological
footprint is most significant and contradicts neo-Malthusian theories: high resource
consumption is associated with peace. It stands for higher levels of development and
wealth. The authors assume that these countries have higher opportunity costs if they
engage in conflict and try harder to resolve conflicts peacefully. A threshold effect,
which qualifies neo-Malthusian assumptions, has been suggested before (see for
example Homer-Dixon 1994; Maxwell/ Reuveny 2000; Raleigh/ Urdal 2007).
Meier et al. (2007) modify the dependent variable: It includes human deaths or livestock
losses due to armed clashes and organized raids in Ethiopia, Kenya, and Uganda. Precipitation, vegetation, and forage are environmental independent variables; reciprocal
exchanges, peace initiatives, mitigation, aggravating behaviour, explicit provocations, and
pressures are behavioural independent variables. Their result, which is not very robust,
indicates that organized raids may be caused by vegetation, aggravating actions, and
mitigation efforts whereas reciprocal exchanges and peace initiatives have an appeasing
effect. Contrary to previous assumptions, abundant vegetation high grass and dense
bush cover makes raids more likely. Therefore, the authors believe that access to land is
more important. Absolute scarcity does not seem to be an issue but rather resource
abundance, which is more suitable for looting and financing of rebels.
Scarcity is less a risk than

resource abundance
This finding is further supported by Brown (2010). He measures environmental

degradation with the Normalized Difference Vegetation Index (NDVI), which is an
indicator of ecological change. High NDVI values mean greater land availability. This
approach is applied to Northern and Western Darfur between 1981 and 2006. At the
same time, he analyzes violent conflict between farmers and pastoralists, ethnic
conflict, rebellion against government, and intra-community conflict in Sudan. The
results discourage a relationship between land degradation and violent conflict
because the resource situation did not deteriorate immediately prior to conflicts. In
Western Darfur State, vegetation even improved.
Scarcity as an A second kind of criticism against Malthusian theories claims that scarcity either
irrelevant variable does not exist or can be overcome, with sporadic positive effects on society.
Conflict can be avoided and a resources condition may improve. Early representatives of this view are Boserup (1965) and Simon (1996). They are often cited as
representatives of cornucopian views that stand in contrast to Malthus theory
because they show that the link between resource scarcity and conflict can be
broken by technological innovation, substitution, and international trade. Boserup
develops a new theoretical framework on the basis of case studies. While Malthus
regarded agricultural productivity as an unchangeable independent variable that
exercises its influence on the size of a population, Boserup establishes a new
argument. Agricultural output is determined and altered by people who invent new
agricultural technology and increase labour productivity. That is why, according to
her, population growth is not a reliable predictor of resource depletion. Simons theoretical argument, underlined with qualitative observations, follows a similar path.
Resources may be scarce in the short run; in the long run, however, population
growth contributes to decreasing scarcity. Initially, more people consume more and
generate scarcity. This will raise resource prices to the level where investment in
research is promoted. New knowledge has shown the effect of reducing resource
scarcity. Historically, there has been a steady increase in food production and fewer
people have starved, more land has become available, and natural resources seem to
become more abundant since their prices are declining.
Lomborg (2001) also challenges the assumption that resources are becoming scarcer
and could hence be a source of conflict. Looking at quantitative evidence, he concludes that most resources have become more abundant, except for water. The
Malthusian contention could not be confirmed. By means of data from the Food and
Agriculture Organization (FAO), Lomborg shows that intake of calories per capita
has increased and starvation rates have dropped even though the population is
growing. Because of technological change, food prices, indicative of scarcity, have
been decreasing. Problems in Sub-Saharan Africa can be traced back to political
instability, corruption, and inadequate infrastructure. Although soil erosion is also a
problem, it has been offset by productivity gains in agriculture and will consequently
not affect food production in any significant way. Similarly, non-renewable resources,
such as oil, gas, coal, and metals, have seen a decrease in their prices over the last
decades before 2001. Better knowledge and technology as well as possibilities for
substitution have steadily increased reserves. Only water seems to be a relatively
scarce resource in Lomborgs eyes. But even here, it is predominantly a matter of
adequate pricing to distribute available resources evenly. Most of the time, however,
disputes come at a high cost and are preferably solved through negotiation. In sum,
Lomborg discourages a link between scarcity of certain resources and conflict.
Migration as cause and factor
This argument is further illustrated in several qualitative studies in Gausset et al.
(2005). On the basis of examples in Sub-Saharan Africa, natural resource scarcity, and for cooperation
land in particular, is not considered inevitable. Various factors can cause broadlydefined scarcity and conflict, of which population growth is not the most prominent
one. Juul (2005) bases her argument on an analysis in the Senegal. Even if resources
become scarce through population growth in the form of migration, conflict is not a
necessary consequence. It can have positive effects on the migrating as well as the
receiving population. Having to adapt, migrants developed innovative and productive
strategies while offering more opportunities to the indigenous population at the same
time. Scarcity had produced a more specialized, mobile, and labour-intensive production system as opposed to violent conflict. Juul claims further that conflicts about
water and land are related to access, and not to absolute scarcity.
Mortimore (2005) also does not consider scarcity a static condition. Using Nigeria and
Niger as case studies, he explains the concept of social resilience intelligent human
beings are able to adapt to environmental changes from which an alternative interpretation of scarcity is derived. Scarcity is not necessarily a threat to livelihood, but an
opportunity to be flexible, given adequate means. Less optimistically, it reflects (private)
investment and mismanagement. Although markets, technological change, and population growth may determine scarcity to some extent, capacities at the micro level are
powerful. As a consequence, the central government should promote adaptability and
make resources more accessible by reducing constraints such as employment regulations, rent-seeking by providers, tariff barriers, and immigration controls.
Van Beek and Avontuur (2005) observe the Kapsiki/ Higi people in Cameroon and
Nigeria, agreeing that people have the chance to alter the environment and adding
that the environment is itself flexible in its response. However, this adaptation has
limits. People were able to sustain an equilibrium through intensification and diversification, but uncertainty regarding future environmental flexibility and markets and
population development could result in exploitation. In order to prevent such a
scenario, van Beek and Avontuur suggest facilitating ecological engineering by giving
the Kapsiki/ Higi more individual choices, raising awareness of long-term costs and
benefits from adaptation, and interacting more with external forces.
The myth of international Against common assumptions of imminent international water wars, research does
water wars not support this hypothesis. It rather highlights the positive effect of institutions on
conflict resolution. Although there are several alarming developments with regard to
water demand, supply, and distribution, cooperation has been actively promoted.
Before presenting studies underlining this argumentation, opposite claims are shortly
reviewed. Fears about violent international conflicts are frequently mentioned with
regard to water as a renewable resource. Klare (2001) defines resource wars as
conflicts where valuable materials are the central cause. He illustrates possible cases of
international water wars with the Nile, Jordan, Tigris-Euphrates, and Indus River
Basins. Although oil was then the most significant variable in determining conflicts,
Klare predicts that water is becoming increasingly important, since it shares many
characteristics of oil. Demand is increasing and governments try to maximize their
availability of water supply. If there is no regional institution that can regulate
distribution, civil war or international wars become increasingly likely.
Water wars? Most other scholars agree, however, that there are no international wars over water.
Selby (2005), for example, disagrees with Klares predictions. Water will not cause the
same kinds of violent conflicts as oil has in previous decades. Oil may have caused the
establishment of authoritarian regimes, civil wars, and inter-state conflicts, but water
has not been a key factor in these issues. It is maybe relevant in local violent conflicts
in Africa. But even there, water scarcity does not automatically result in violent
conflict, as exemplified by Canter and Ndegwa (2002) in the area around Lake
Victoria, which experiences environmental degradation and population growth. They
did not observe acts of violence but rather cooperation at the inter-state level and
non-violent conflict at local levels as well as an increase in the incidences of crime.
The authors conclude that violence did not break out because scarcity is viewed as a
result of poverty and not of actions by other people. Most importantly, they accuse
neo-Malthusian theorists of advancing a national security agenda that frames the
discourse over scarcity and conflict. Selby (2005) similarly argues that attention
should rather be paid to poverty and water-related health crises.
Lonergan (2001) assesses empirical studies and exemplifies the above argument with
the Middle East (Nile, Jordan, and Euphrates River), just as Klare (2001). Like
Goldstone (2001), he first shows that reduced water supply is often a dependent
variable. Armed conflicts cause water to become scarcer. Second, water is related to
conflict on two conditions: Upstream users have great military power and exercise
control over the quantity and quality of water and, as suggested by Hauge and
Ellingsen (1998), armed conflicts are subnational. Lonergan concludes that water has
never been a direct or major cause of international wars, and that they are unlikely to
occur in the future. Water may at most be a contributing factor.
Haftendorn (2000) confirms the conflict potential of water, especially concerning

transnational waters. This is the case for the following rivers: Parana, Danube, Oder,
Rhine, Euphrates, Nile, Ganges, Colorado, Rio Grande, and Jordan. She uses the
same categories for potential conflict as Bchler et al. (1996), namely, quantitative and
qualitative supply of water as well as relative and absolute distribution. While international water conflicts are resolved peacefully most of the time, questions of relative
distribution seem to have the largest potential for military action. Conflicts are best
mitigated if countries are economically, politically, and socially interdependent.
Institutions that foster information exchange, confidence, arbitration, and mediation,
to name just a few, are crucial in resolving conflicts.
2.2 Institutional Failure as a Source of Scarcity and Conflict

Institutional failure as cause of scarcity and conflict
Corruption, Rent-Seeking,
Asymmetric Information,
Scientific Assessments,
No/ Weak/ Slow Biased
Institutions, Bureaucracy
Decentralization,
Lack in Social Capital,
?
Incomplete Property Rights,
Market Failure, Market Economy
Absolute/ Relative
Resource Scarity
Violent/ Nonviolent
Conflict,
Domestic/ International
Conflict
While international water wars are largely prevented due to successful institutions, some Definition of institutions
conflicts are becoming more severe due to failing institutions. According to a second
line of argumentation, which tries to incorporate criticism of neo-Malthusian theories, scarcity is a consequence of unregulated resources or inadequate institutions.
Environmental degradation (Ostrom 1990) or conflict (Giordano et al. 2005) would
not occur, if a proper private, central government, or local-level institutions were in
place. Following a definition by North (1990), institutions guide individual behaviour,
interactions with others, and society in general by establishing incentives. Informal
institutions are a set of rules or norms, such as markets, communities, and social
capital; formal institutions are a set of rules fixed in regulations and constitutions
(North 1990). Preventing scarcity or mitigating conflict is, hence, considered a
primary task of formal and informal rules. For the purposes of this overview, those
institutions are considered that are an incentive to start a conflict or prolong it. As
Acheson (2006) points out, this field is not very well explored because researchers
tend to highlight exemplary institutions, instead of those that are inadequate (Acheson 2006: 118). The following two sections review, first, the more abundant literature
on the role of institutions in producing natural resource scarcity and, second, their
active role in triggering conflict, which is particularly difficult to assess.
We will build on these findings in Part D of this paper when we analyze policy
instruments to tackle resource scarcity and conflict
2.2.1 Resources, Institutions, and Scarcity

The problem of common-pool Common property theory deals with the question how common pool resources can
resources be managed sustainably. Common-pool resources, such as water, air, land, and
forests, are easily subtractable and it is difficult to exclude people. Scholars studying
the success and failure of institutions try to find out which kinds of private property,
government management, or local-level management are able to prevent a resource
from becoming scarce and, hence, a potential cause of conflict.
Acheson (2006) argues that private property as well as central government and locallevel management have failed at times, causing scarcities to intensify. The underlying
cause is some groups or states inability to devise effective institutions. Reviewing the
scarce literature that exists, Acheson explains theoretically why several institutions can
fail to preserve natural resources. First, privatization is only effective if private property
rights are complete, well-defined, and enforced. In addition, markets have to function
well. However, some resources cannot be privatized, such as fish or air, and market
failure is a commonly recognized problem. Furthermore, there are four reasons why
owners of private property rights may deplete a resource: (1) if maximal profits can only
be made in the short term, (2) if resources take a long time to grow, (3) if payoff is
uncertain, and (4) if the situation of the owner requires immediate use due to poverty or
economic survival. Second, governments can either own a resource or make laws and
regulations. Once the government has assumed responsibility, it can still fail in several
ways. Government agents are not able or willing to manage resources effectively. They
may want to serve their own interests; the most severe form is corruption. This is
supported by interest groups who sometimes engage in rent-seeking, a practice where
they influence policy-makers, using their resources, in order to generate additional
profits. Even if agents do not work against conservation, cooperation may be complicated given adverse bureaucratic incentives and asymmetrical information and top-down
management that is prone to generalize, not taking into account differences. Scientists
and engineers may also be a problem because they frequently make mistakes in assessing a situation correctly. Third, communities are sometimes not able to either devise
rules or enforce them. Several characteristics of the community, such as social capital,
homogeneity, dependence on the resource, and leadership, can determine success or
failure. In addition, factors beyond the community may be a problem: central government agents, class struggles, the influence of former colonial governments, population
growth, and new markets.
2.2.2 Resources, Institutions, and Conflict

Not every case of resource scarcity necessarily produces violent conflict. Various
institutions are able to dissolve non-violent conflicts over scarce resources. The
following considerations explore which institutions, or lack of institutions, have been
obstacles to mitigating non-violent as well as violent conflict.
Giordano et al. (2005) do not deny that resource scarcities exist and that they could
potentially cause conflict. However, a discussion focusing on the supply and demand
of natural resources is too narrow. Crucial intervening variables, determining whether
resource scarcity is translated into conflict, are institutions. Establishing a theoretical
framework on the basis of this assumption leads them to claim that absence of
institutions due to ill-defined sovereignty or the nature of transboundary and common-pool resources, the collapse of institutions, or an environmental change that is
faster than institutional adaptation increase the risk of international conflict.
Open markets
Little integration in international markets can raise the conflict potential. De Soysa
(2002a) initially conducted a quantitative study of 138 countries in order to study the
relationship between population variables and violent conflict. Her results show,
however, that population density is unrelated and ethnicity only plays a role in
conflicts where societies are homogenous, especially where Islamic or Catholic
populations increase. She suggests that abundance of mineral wealth in a country is
more conducive to armed conflict than renewable resource scarcities. The most robust
result is the ratio of total trade to GDP. Countries that are less open to trade suffer
more from conflict. De Soysa cautioned in 2002, however, that this research field
lacks theoretical foundations.
Examples from cases
A few specific cases illustrate some general problems. Government institutions in
Colombia, for example, have not been able to end agrarian conflicts (Elhawary 2007).
Several land reform laws throughout the 20th century, aiming at redistributing land
and compensating groups, have failed. Because these issues could not be settled,
violent conflicts over land control recommenced. Subsequent flows of migration
caused the government in 1997 to pass a law protecting displaced peoples land.
Enforcement of this law is impeded by its design and by special interests, for example
the lack of resources and coordination as well as corruption and rent-seeking.
A variety of conflicts may erupt if institutions fail to remove perceived inequalities, as
in the case of tropical fisheries in Ghana, Bangladesh, and the Turks and Caicos
Islands. Bennett et al. (2001) examined different types of conflict in 2000: conflicts
over access and control and conflicts between different groups, users, and non-fishery
entities. Although there had not been violent conflict, their results might offer
valuable clues about the role of formal and informal institutions. In Bangladesh, the
government failed to support community efforts and was corrupt. Conflict management institutions were largely absent. In Ghana, de-centralization has not had the
desired effects because resources for enforcement have been eliminated. In the Turks
and Caicos Islands, much social capital is helpful but private interests in government
institutions impede proper management. Bennett et al. conclude that governments
should support local-level conflict resolution by managing information flows. Walton
and Barnett (2008) confirm with their analysis of a gold mine in Papua New Guinea
that slow resolution processes could trigger conflict. Although the mine had not
caused conflict in 2003 and 2004, unequal distribution of environmental impacts and
compensation payments has led to non-cooperation and resistance in the past.
Bardhan (2005) conducts a quantitative analysis in South Indian irrigation systems
trying to filter out variables for declining cooperation, which are determined by
private, government, and community institutions. Inequality of landholding and
urban/ market connections are detrimental to cooperation, as are restricted access to
water, lack of monitoring by guards, heterogeneous and large groups of resource
users, and no proportional cost sharing. He concludes that it is largely the governments responsibility to promote cooperation.
2.3 Unequal Power Relations as Sources of Scarcity

Social constructions of Political ecology is a research field that is characterized by analyses of historical,
scarcity and conflict cultural, economic, and political structures that shape power relations. It asks how
unequal power relations influence the distribution, control of, and access to natural
resources. Contextual analyses of local histories and social relations are crucial for
this kind of research. Issues of class, race, and gender often play a vital part in
resource conflicts. One prominent political ecology scholar is Le Billon (2001). He
cannot be definitely assigned to either school of thought scarcity or abundance and
conflict because he claims that both terms are socially constructed and situated in a
certain political economy context. Some resources are declared to be desirable, and
this construct is reinforced by market mechanisms. His theoretical framework
proposes a study of resource dependence, conflictuality, and lootability. Dependence
has to be studied as a result of historical processes that are related to poor economic
performance and greater inequalities. Conflictuality of a resource means that social
relations and institutions have an effect on the risk of conflict. Lootability, a term
mostly used by abundance scholars, specifies whether a resource can motivate or
fund a conflict. In most of his analyses, however, Le Billon examines locally abundant, non-renewable resources, such as oil, minerals, and drugs. He does not go into a
discussion of water and land, which are usually claimed to be scarce resources. With
regard to these renewable resources, Le Billon merely claims that they are associated
with rebellion and rioting, which are the main types of armed conflict discussed by
the literature before 2001.
By criticizing Homer-Dixons macro-level model, Timura (2001) shows that it lacks a
contextual analysis of social and cultural components, including history, perception,
and local economies, preventing good policy solutions. Outbreaks of violence in the
1990s in Brazil, Ghana, and Mexico are difficult to explain with environmental
factors. Timura adds to Le Billons (2001) framework that researchers should scrutinize their own motivations, implicit assumptions, and theoretical constructs that
motivate their modelling. Joining this last argument, Turner (2004) suggests that most
scholars perspectives and results serve the purpose of political and environmental
stabilization but not necessarily the resource users. He finds in a qualitative assessment of land conflicts in the Sahel that there are many complex processes that make
conflicts more acute. Apart from subsistence, conflict is motivated by political gain
and higher political purposes.
Social structures, scarcity and conflict

Social relations
(Class, Race, Gender)
Norms and Values,
Perceptions, History,
Prevalent Economic System
Striving for Power
Unequal Distribution,
Access and Control
Violent/Nonviolent
Conflict,
?
Absolute/Relative
Resource Scarcity
Domestic/International
Conflict
2.3.1 Farmer-Herder Conflicts

Shortcomings of
Institutional analysis, presented in the previous section, does not consider social
structures, which enable the creation of certain institutions that make a society more institutional analysis
prone to conflict, according to some scholars. This research focuses on the question
how incentives determine behaviour, but not how these incentives are structured.
Manger (2005), in the previously mentioned book by Gausset et al. (2005), recognizes
adverse government institutions in Sudan, such as autocratic leadership, corruption,
and collapsing states, but concentrates on power relations leading to these outcomes.
New land tenure laws, for example, are strongly influenced by the colonial history and
decolonisation regimes, when unregistered land was nationalized. Government agents
used this law for private interests and enabled so-called land-grabbing by elites, which
is further supported by current tendencies to privatize. Hence, conflicts seem to be
caused by land privatization and water monopolization; ethnic conflict, population
pressures, and environmental degradation make the situation more acute. In general,
these conflicts erupt due to perceived inequalities in the making of institutions the
fact that there are winners and losers from privatization and when individual
interests are threatened.
Gausset (2005) argues that objective scarcity, that is, the carrying capacity on which
people depend for survival, is not significant but rather relative scarcity, which is a
perceived gap between resources and needs that impairs people in their well-being.
Although there is a low population density in his study area, Cameroon, violence
might arise out of agro-pastoral conflicts due to different perceptions and uses of the
same resource, different systems of management and power and justice, and different
cultural and ethical perspectives. In Lesotho, for example, partial land degradation
and depletion emerged at the same time that food security was an issue. However, a
third trend toward livelihood diversification might explain low agricultural output
better than population growth and scarce land. Boehm (2005) shows that farming is
still relevant for peoples identity and culture, but that reliance on this sector seems to
be too risky, causing a movement into wage labour. Hence, scarcity is caused by
reluctance to invest in agriculture and the ensuing inability to raise productivity.
Benjaminsen and Ba (2009) also study the recurring theme of conflict over the use of
land and show that several factors gave rise to violent conflict in a village in Mali in
2006 and 2007. Farmers and herders compete for land, but not necessarily because it
is scarce. Policies that change the power balance between these two parties, corruption, agricultural policy, rent-seeking, and de-centralization reform accelerated
conflicts in addition to droughts. In Mali, agriculture was modernized at the expense
of marginalizing livestock keeping because some powerful actors stand to gain.
2.3.2 Interaction of Resources and Ethnic Conflicts

Ethnicity and conflict Moyo (2005) argues that Zimbabwe has seen many resource conflicts due to
colonial land expropriation and racial inequality. Private property policies and
structural adjustment programs were not successful in stopping grievances and
deteriorating environmental conditions, contributing to a tenser situation. Taking
all these factors into consideration, it is maintainable that population growth,
unavailable access, maldistribution, and a slow land productivity growth rate are
causes of grievances, which could result in conflict. Timber, land, water, and
minerals might also have played a part in mobilizing the Jharkhand movement in
India ( Jewitt 2008). But these natural resources could not have caused protests
alone in the absence of an ethnic movement. The situation in Northern Thailand
with regard to ethnicity was similar (Wittayapak 2008). Demonstrations, raids,
arrests, harassments, and the use of violence may appear to ensue from declining
forest cover, and access to forest, but a closer look indicates that ethnic conflicts
were involved. Ethnic identification developed over a long period of time, and it is
tied to geographical aspects. Hierarchies are organized according to the categories
of valley and hill. These places are assigned symbolic meanings of wildness and
civilisation. Conservation policies perpetuated these inequalities and contribute
their part to conflicts. In this case, the government instituted these policies in order
to sustain political and economic power over natural resources.
Racial prejudices are also at the base of a land conflict in Honduras. Mollett (2006)
describes how two indigenous groups make exclusive claims on land and produce not
only a resource conflict but also an ethnic one. In countries with many cultures, like
Honduras, long-standing social relations have to be considered in analyses.
2.4 Conclusion
With regard to resource scarcity and conflict, several of the revised studies find that
absolute and relative scarcity have adverse effects on peace with the exception of a
few cases where scarcity promoted innovative solutions. Most of the time, when
decreasing supply meets increasing demand, existing divisions in a society are
exacerbated, catalyzing conflict. We found that short-term environmental disasters
can increase the risk of conflict. A growing population in already dense areas,
especially rural ones, is an additional risk factor. Migration of a different ethnic
group, for example, makes the receiving region more vulnerable to conflict. Overall, small-scale domestic armed conflict in developing countries is more likely with
regard to land and water distribution, while international water conflicts, in contrast,
are mostly non-violent.
However, by far not all scholars agree with this linear, direct causality. On the
contrary, they suggest multiple mechanisms between demand/ supply of resources,
scarcity, and conflict. Scarcity (and conflict) do not have to develop, depending on
the (political, social and cultural) context. More recent studies try to incorporate
short- and long-term, context-specific factors, such as integration into markets,
economic development, property regimes, government interventions, composition
of the community, historical inequalities, and community-specific values and
norms. Hence, opinions on the degree of explanatory power of scarcity diverge.
While it is considered an independent variable by some, others examine it as a
dependent or intervening variable.
Multi-causal links between

scarcity and conflicts
3. Resource Abundance and Conflict

How resource abundance can cause conflict
?
Resource abundance /
Resource dependence
Dependent variable
Rebels
State Capacity
Violent Domestic
Conflict
Political, Economic
and Social Context
When resource scarcity as a single cause of large, organized, violent conflict was
increasingly called into question, several scholars explored the possibility of the
seemingly paradox relationship between resource abundance on the one hand and
civil war on the other hand (Collier/ Hoeffler 1998; Le Billon 2001; de Soysa
2002b, Meier/ Bond/ Bond 2007). Empirical findings of resource abundance and
conflict seemed to be much more significant than those of resource scarcity, not
least because scarcity conflicts could be explained with an almost endless number
of independent variables. Explaining conflict with greed instead of grievance
seemed to be much more plausible. Grievances may or may not be a consequence
of scarce resources, and they can be a motivation for violence with the goal to
achieve justice. Greed as motivation for conflict is primarily a problem in resource
abundant countries because valuable resources are an opportunity for rebels to
accumulate wealth.
Correlates between abun- After a direct positive relationship a countrys resource abundance makes conflict
dance and conflict more likely had been established in quantitative analyses including a large number
of countries, scholars focused on identifying possible mechanisms linking abundance and conflict. Two main mechanisms have been suggested, widely known as
looting rebels (Collier/ Hoeffler 1998, 2004) and weak states (Fearon/ Laitin
2003; Fearon 2005). Recently, a clear separation of political and economic factors
was called into question, favouring an approach that integrates them instead
(Humphreys 2005). With discourse intensifying, scholars have increasingly specified the independent as well as dependent variables, both in quantitative and
qualitative studies, in order to facilitate policy recommendations (i.e. Ross 2003,
2004; Collier et al. 2004; Fearon 2004; Auty 2005; Le Billon 2005; de Soysa/
Neumayer 2007; Welsch 2008; Lujala 2009). In addition, several scholars show that
resource abundance is not a necessary condition for conflict. The same qualifications that mattered in the previous section on resources and economic growth,
apply to the relationship between resources and conflict: Institutions matter. In
other words, there are possibilities to break a positive relationship (Snyder/ Bhavnani 2005; Snyder 2006; Dunning 2005; Basedau/ Lacher 2006; Franke et al. 2007;
Sarr/Wick 2010). In some studies, reverse causality or a negative relationship has
even been found (Sherman 2003; Regan/ Norton 2005; Brunnschweiler/ Bulte
2009; Thies 2010).
Selected Studies on the Relationship between Resource Abundance and Conflict
Qualitative Studies
Relationship between Resources and Conflict: Positive

Renner 2002;
Addison et al. 2003;
Weinstein 2005
Collier/ Hoeffler 1998;

de Soysa 2002a;
de Soysa 2002b;
Collier et al. 2004;
Fearon 2004;
Collier et al. 2009;
Lujala 2009
Relationship between Resources and Conflict: Conditional
Resource
Abundance/
resource
Dependence
Renner 2002;
Cater 2003;
Regan 2003;
Ross 2003;
Ross 2004;
Auty 2005;
Le Billon 2005;
Ikelegbe 2006;
Dube/ Varges 2007;
Le Billon 2008;
Van Klinken 2008;
Guesnet et al. 2009;
Frank/ Guesnet 2009
Fearon/ Laitin 2003;

Fearon 2005;
Lujala et al. 2005;
De Soysa/ Neumayer 2007;
Lujala 2010
Relationship between Resources and Conflict: Discontinuous

Englebert/ Ron 2004;
Dunning 2005;
Snyder/ Bhavnani 2005;
Snyder 2006; Franke et al. 2007
Basedau/ Lacher 2006;

Basedau/ Lay 2009;
Sarr/ Wick 2010
Relationship between Resources and Conflict: Negative

Sherman 2003;
Regan/ Norton 2005;

Brunnschweiler/ Bulte 2009;
Fjelde 2009;
Thies 2010
No Relationship
Aspinall 2007;
Di John 2007;
Banks 2008
Fearon/ Laitin 2003
3.1 Mechanisms
Looting rebels model and Among the scholars that find a positive relationship between resource abundance and
state capacity model conflict onset, conflict duration, or conflict severity, some offer economic explana-
tions and others political ones. The two most frequently discussed ones are the
looting rebels model and the state capacity model. First, resources can be a means or
motivation for rebellion. It is assumed that rebels are rational actors that act according to cost-benefit calculations: if perceived benefits outweigh the costs of conflict,
violent action occurs. Second, resources can play a role in conflicts by weakening state
institutions. If governments receive revenues from valuable resources, it does not
have to tax its people. At the same time, this so-called rentier state does not have to
be accountable, neglecting economic diversification and the provision of public
goods. Resulting resource dependence and poverty may be a cause of conflict.
Alternative approaches, partly combining the two dominant models, are increasingly
popular.
3.1.1 Mechanism I: Opportunity and Feasibility

Looting rebels model in Collier and Hoeffler were at the forefront of showing that civil war has economic
civil war economies causes. Since then they have been widely cited as representatives of the economic
perspective. The looting rebels model, as it is commonly referred to, was tested for
the first time in Collier and Hoeffler (1998). The analysis includes onset and duration
of civil war (organized military action with at least 1,000 annual battle deaths)
between 1960 and 1992 as dependent variables, which are examined separately in
subsequent studies because they are subject to different mechanisms (Collier/
Hoeffler 2004). In theory, onset and duration are determined by the benefits and costs
of rebellion. Two results are particularly important for our analysis: (1) Higher per
capita income decreases the likelihood of conflict. This might express recruits higher
opportunity costs of war; (2) Natural resource endowments only increase the risk to a
certain point, after which conflict becomes less likely. The authors assume that rebels
are attracted to a higher resource base, but that rebellion is terminated when the
government has enough resources to defend itself. Collier and Hoeffler use primary
commodity exports to approximate resource abundance because this measure is
available for many countries and over a long period of time (Collier/ Hoeffler 2005).
In short, civil war has economic causes because rebels weigh the costs of rebellion,
expressed in foregone income, against the benefits, reflected by a countrys revenue
flow from primary commodity exports.
Benefits from resources In a more recent analysis, the two authors examine only onset of civil war for the
as a cause of conflict period between 1960 and 1999 with similar results. As in their 1998 study, the
relationship between resources and conflict is nonlinear. But Collier and Hoeffler
(2004) revise their previous hypothesis post-conflict benefits to rebels have to
cover the costs of rebellion and claim that benefits can also be a cause of conflict
in themselves. In this case, a civil war is started because of revenue flows, which
can be in the form of primary commodity exports, diaspora transfers, and / or

foreign government support. Since all of them predict civil war significantly, the
hypothesis is confirmed.
Not motivation but feasibility
Recently, Collier and Hoeffler distanced themselves from motivation as a cause of
determines conflict
conflict, that is, the greed and grievance debate. While earlier analyses concentrated on distinguishing between different motivations, Collier et al. (2009) now
prefer feasibility as a cause of conflict, independent of motivations. Having advanced
their previous analyses by doubling the sample, extending the period to 2004, and
improving the quality of the data, the authors show that rebellion will occur where
it is feasible. Previous results are confirmed, but new variables offer more clarity to
the causal mechanisms. Because primary commodity exports can be interpreted in
various ways (they can be an opportunity to finance rebellion, a motivation to
capture rents, and/ or a sign for grievances), three new variables (1) former
French colony in Africa, (2) proportion of the population that is male and between
15 and 29 years old (youth bulge hypothesis), and (3) proportion of the country that
has mountainous terrain, were introduced to the model. They support the authors
assumption that civil war has to be militarily and financially feasible in order to
occur: French security guarantees make it less feasible; young men and mountainous terrain make it more feasible.
An entirely different and uncommon perspective is adopted by Weinstein (2005).

He draws attention to the selection of rebels in resource-rich and resource-poor
areas. According to Weinsteins model of rebel recruitment, rebel leaders have to
attract potential rebels in order to stand a chance against the government. Incentives can either be immediate payoffs or promises about benefits in the future. If
resources are abundant, immediate payoff is possible, attracting mainly opportunistic rebels. If rebel leaders can only make promises in the absence of resource
abundance, rebels join if they believe that victory is likely, that leaders will adhere
to their promises, and that future benefits are high depending on the individual
discount rate. Hence, rebels in a resource-scarce environment should be motivated
by identity or beliefs, whereas rebels in resource-rich settings should be driven by
material incentives. This is illustrated by four cases. The National Resistance Army
(NRA) in Uganda and the Eritrean Peoples Liberation Front (EPLF) attracted
rebels with idealistic motivations, while the Revolutionary United Front (RUF) in
resource-rich Sierra Leone and the Renamo in Mozambique, which had external
revenue sources, had opportunistic rebels.

Differences in rebel group

recruitment
3.1.2 Mechanism II: State Capacity

States financial, administra- The other major line of argumentation is similar to arguments of opportunity and
tive and political capacities feasibility in that it does not support a relationship between general grievances, such
as discrimination and inequality, and shifts the focus to a countrys abundantly

available resources. In contrast to economists who analyze how natural resources
affect rebel groups, political scientists explore how natural resources affect a states
financial, administrative, and political capabilities. Karl (1997) was one of the first
scholars to develop a respective model, exemplifying her argument on the basis of
oil-producing countries. Economic growth based on natural resources alters or builds
institutions that have an effect on a states tax structure. These institutions include
property rights, power of interest groups, and state relations to the market, providing
incentives to policy-makers who develop preferences about the allocation of natural
resources. In oil-producing countries, the allocation mechanism has not been efficient
but rather marked by political rent-seeking. The central problem is that policy-makers
elude accountable decision-making by relying less on taxes and more on resource
rents. In short, promising natural resources may inhibit development by fostering economic decline and political instability. (For a more detailed discussion of the relationship between resource abundance and economic growth see Part B of this study.)
Defining the independent An analysis by Fearon (2005) focuses specifically on the explanatory power of
variable: Resource wealth primary commodity exports for civil war. Fearon is not able to replicate Collier and
Hoefflers results with only minor changes to sample frame and model specification.
Changing the grouping of data intervals from five years to one year, for example,
diminishes the significance of primary commodity exports. Consequently, he criticizes primary commodity exports as proxy for rebel funding: (1) Primary commodity
exports include resources that are not easily lootable and require complex production
systems (oil) or that are not profitable (cash crops). (2) It is the government, not
rebels, which benefits from primary commodity exports and can use the revenue to
suppress rebellion. The argument would be more convincing if primary commodity
exports included diamonds and drugs. Rebels only have a chance to gain from
exports if they capture the state. Oil exports are an exception because they increase
the risk of civil war onset significantly if they comprise at least one third of exports
although they require a complex infrastructure. This result indicates an important role
for oil in state capacity, but not rebel funding. It is more likely, according to Fearon,
that oil rents weaken state institutions, making capture easier. Because the state does
not have to tax its people, it is not held accountable and does not face incentives to
develop capacities and control in the entire country.
State capacity model: No With this analysis in mind, it is not surprising that Fearon and Laitin (2003), the most
causal link between resource widely-cited representatives of the state capacity model, do not find a significant
exports and civil war relationship between primary commodity exports and civil war (with at least 1,000
total battle deaths and 100 annual battle deaths). According to them, onset of civil
war can be best explained by conditions that favour insurgency. Insurgency is defined
as a tool of conflict used by small, sparsely armed groups that practice guerrilla
warfare, starting from rural areas. While high per capita income does not favour
insurgency (in contrast to Collier and Hoeffler (1998, 2004), who interpret per capita
income in terms of opportunity costs, Fearon and Laitin utilize it as a measure for
state capacity), primary commodity exports are unrelated. Nevertheless the authors
advocate a decisive role for natural resources in civil war, just not when encompassing
all resources. If a countrys oil exports are higher than one third of total exports, the
risk of civil war is doubled.

3.1.3 Additional Mechanisms
In recent years, scholars have increasingly explored the possibility of several mechaAbundance and conflict links
nisms interacting with each other or applying to different contexts. On the basis of
observations, mainly in Africa, Humphreys (2005) filters out six mechanisms, which
include the two aforementioned, linking resource abundance and conflict. (1) Rebel
groups want to benefit from resources, they want to capture a state that has a higher
value due to resource revenues, or they attempt to secede a region with abundant
resources from the state. In all these cases, rebels do not have to control resources
directly. Capturing rents is the ultimate goal. (2) Foreign countries or companies may
become part of a conflict if they are interested in a states resources. (3) Grievances
can arise from inequality, dissatisfaction due to resource dependence and vulnerability
to price shocks, the process of extraction, and unequal distribution. (4) Resources may
not be the central motivation but they are tools for winning a conflict. The control of
resources makes conflict possible in the first place. (5) Weak states are a result of
missing taxation in light of resource revenues. A society does not have incentives or
means to control government activity, generating a hardly responsive state. The state
on the other hand does not have an incentive to create strong institutions. (6) Groups
that are not connected by internal trade because resource production dominates the
economy are more likely to fight each other. Interdependence can foster understanding for each others cultures, or even change cultures, and reduce the risk of conflict.
Depending on the mechanism, policy responses can be more or less effective.
Humphreys criticizes earlier studies for using an inadequate independent variable.
Primary commodity exports do not reproduce an exact image of the resource situation because they do not contain numbers regarding illegal trade in drugs and
diamonds and they include exports of those resources that were imported before.
Therefore, he suggests alternative measures: level of diamond production, level of oil
production, proven oil reserves, and share of agricultural production in GDP. Using
these new variables, Humphreys tests the six mechanisms in a quantitative analysis.
The internal trade mechanism seems to be important. Industrial economies that have
more internal trade than those depending on agricultural production face a lower risk
of conflict, independent of natural resources. A weak states or grievances mechanism
Inadequate independent
variables
has more explanatory power than an opportunity mechanism because already

produced oil is positively related to conflict, whereas prospective oil wealth in the
form of reserves is not. In addition, oil abundance is particularly destabilizing in
already weak states, suggesting reverse causality.
3.2 Dependent, Independent, and Intervening Variables: A Specification

A general statement about the relationship between resource abundance and conflict
is not possible. Different resources, or groups of resources, are associated with
different forms of conflict. What complicates the issue further is that resources are
related to conflict in some cases but not in others. Prominent examples are Nigeria
and Norway, both oil producers that face entirely different risks of conflict. There
seem to be certain circumstances at work, either stopping or encouraging violence.
3.2.1 The Dependent Variable: Conflict Onset, Duration, or Severity?
Resource characteristics There are variations in the type of conflict in resource-abundant countries. The
influence type of conflict literature clearly focuses on secessions and has so far neglected foreign interventions.
The type of conflict is always determined by resource characteristics, which are the
subject matter in the next section. In addition, resources have different effects on
conflict duration and severity than on conflict onset, and they may work through
different mechanisms. Resources can make conflicts longer or shorter, less intense or
more intense. On the one hand, easily accessible, profitable resources can finance
rebellion and induce economic self-interest. Hence, conflicts in areas of economic
significance (resource-rich areas) will be longer and more intense. On the other hand,
these same resources can precipitate victory, erode rebel organizations, or withdraw
popular legitimacy for resource exploitation, ending civil war (Le Billon 2005).
Five types of resource conflicts, Type of Conflict Onset. The most comprehensive overview of resource and conflict
depending on resource type characteristics is probably offered by Le Billon (2005). For now it is sufficient to name
the resource characteristics point/ diffuse as well as proximate/ distant and focus
on different kinds of conflict. A detailed description of resource characteristics
follows in section 3.2.2. According to Le Billon, there are five types of resource
conflicts: (1) Coup dtats are prevalent in oil-rich regions. Point resources, such as oil,
cannot be easily extracted by rebels. Governments, in contrast, have better access.
Therefore, rebels only benefit if they capture the state. Evidence stems from coup
dtats in Algeria, the DR Congo, Colombia, Iraq-Kuwait, and Yemen. (2) Warlordism
often occurs in areas where timber is produced and diamonds/ gems are mined.
These distant and diffuse resources are a source of income if state capture was not
successful. So-called warlords control a territory, effectively establishing local sovereignty. This has been the case in Afghanistan, Angola, Burma, Cambodia, DR
Congo, Liberia, Philippines, and Sierra Leone. (3) Secessions may often be motivated by
grievances, induced by central resource management, but future benefits of locally
concentrated resources can also be an incentive to separate from the state. Oil,
copper, gold, and phosphate are point and distant resources, which have led to
secessions in Angola, the Chechen Republic, Indonesia, Morocco, Nigeria, Papua
New Guinea, and Sudan. (4) Rebellion, involving coffee and cropland, is not as directly
associated with resources. More often, it is mobilization along class or ethnic lines
that triggers conflict. But diffuse and proximate resources lend itself to rebellion
because they involve large numbers of producers and are close to centres of power.
This finding is supported by cases in El Salvador, Guatemala, Mexico, Rwanda, and
Senegal. (5) Foreign interventions are increasingly common in countries with strategic
resources. Literature on this phenomenon is scarce, but initial observations point to a
possible link: the US started a coup in Venezuela and invaded Iraq; Zimbabwe,
Uganda, and Rwanda sent troops to the DR Congo. These five types are the product
of quantitative and qualitative observations; however, it is not claimed that certain
resource characteristics are always associated with one of these five types.
Collier and Hoeffler (2002) and Ross (2003) provide further information on secessionist conflicts. The first is a quantitative study with qualitative illustrations. If
primary commodity exports are significantly related to secessionist civil wars
(between 1960 and 1999), and more than to ideological wars, rebels are motivated by
future benefits. The results support this hypothesis. A specification, oil exports,
further underpins it. Case studies of the DR Congo, Nigeria, Indonesia, and Sudan,
which are all rich in oil and gas resources, also lend support.
Secessionist conflicts
At risk: Lootable resources

In accordance with Le Billon (2005), Ross shows that lootable resources, such as
diamonds and drugs, have been associated with non-separatist conflicts in the past. In
addition, he finds that non-lootable resources, such as oil, gas, and some types of
minerals, have caused separatist conflicts. Non-lootable resources often arouse
grievances over distribution, as in Indonesia, Papua New Guinea, and Angola, and/
or constituted a source of finance, as in Sudan. Lootable resources are less responsible
for grievances because benefits are more widespread. However, they are a source of
funding for rebel groups and they weaken government troops. Soldiers are tempted
by easily exploitable resources. Cases illustrating this argument include Afghanistan,
Angola, Cambodia, Colombia, DR Congo, Liberia, Peru, and Sierra Leone. Only one
case for each resource type does not fit the pattern: Burma has lootable resources and
experienced a separatist conflict, the DR Congo has non-lootable resources and was
entangled in a non-separatist conflict.
Conflict duration difficult to
Conflict Duration. Duration is much more difficult to measure than onset because
define and measure
there are no consistent starting and end points. Often, there are violent events at
the beginning of a civil war and military victory or a peace agreement at the end.
For some civil wars, these points do not exist. It is the number of battle deaths that
may indicate the period. The threshold is defined differently. A higher number of
battle deaths per year includes shorter and more civil wars, a lower number means a
higher average duration and fewer civil wars. This is because a high threshold does
not account for periods of low-intensity violence before the defined civil war onset
and between civil wars. Collier et al. (2004) prefer the first alternative, Fearon
(2004) the second.
Rebellion as an investment, Building on findings by Collier and Hoeffler (2004) resource rents are a motivation
business or mistake for rebels to start a civil war a different study analyzes the factors that had an effect
on the duration of civil war between 1960 and 1999, again from an economic perspective (Collier et al. 2004). Three different reasons for prolongation are offered: (1)
Rebellion is an investment, (2) a business, or (3) a mistake. Their empirical analysis
lends support to the second and third explanations. Theoretically, rebellion can be
seen as an investment. If benefits of conflict, such as natural resource rents, are high,
rebels can afford higher costs during conflict, effectively prolonging conflict until
victory is achieved. Implicit in this assumption is that expected revenues have to
cover costs. Winning a civil war can have political (end repression) or financial
payoffs (gain a share in primary commodity exports). Both variables, openness of
political institutions and pre-conflict share of primary commodity exports, have no
effect on the duration of civil war in this analysis. Rebellion as a mistake or as
business seem to have more explanatory power. In the first case, chances of victory
are perceived as overly optimistic; in the second case, rebels gain from conflict
because benefits during conflict are higher than costs. The study confirms that high
primary commodity exports and declining world market prices of these export goods
shorten civil wars, lending support to the hypothesis that rebellion is not profitable
anymore. The most significant results are reported for per capita income and income
inequality. High inequality and low income probably lengthen civil wars because
rebels have low opportunity costs, reducing the prospects for peace.
Competition of governments There is also an analysis of abundant resources and conflict duration from a political
and rebels over territory perspective. Fearon (2004) examines under which conditions civil wars last longer,
and resources using a civil war dataset for 1945 to 1999 similar to Fearon and Laitin (2003). All civil
wars are counted that had more than 1,000 battle deaths in their course. According to
Fearons definition, a civil war has started if more than 100 people were killed in the
first year of a conflict. A civil war is declared resolved if there is a military victory, a
peace agreement, or a significant reduction in battle deaths. The first group of
conflicts (coup attempts, revolutions, and anti-colonial wars) lasts shorter because
rebels are interested in a decisive victory. The second group (insurgencies involving
ethnic competition for land or opium, diamond, and cocoa trade), by contrast, is led
by rebels who try to force negotiations and their favourable outcomes, often resulting
in stalemates. Hence, rebel strategy is central to conflict duration. If they are supported financially by resources, conflict is continued. War can have benefits for both sides:
Government forces have the possibility to plunder a region and rebels can impose
taxation, for example on natural resources. Nevertheless, Fearons mathematical
model assumes that both rebel groups and the government try to control as much
territory as possible. Rebels will only start challenging government dominance if the
government is weakened in its capabilities. The government can offer sharing
territorial control. This is where an argument central to Fearons model is introduced:
the so-called commitment problem. Rebels probably do not trust the governments
commitments because they believe that the government will revoke commitments as
soon as it has regained strength. Hence, rebels start a civil war. If neither party
dominates, this can result in a stalemate with continued fighting. Rebels agree on
peace once they gain territory. However, the larger commitments by the government
are, the lower is its credibility of long-term promises.
Oil and diamonds lead to
Apparently, conflict duration is subject to different mechanisms. Humphreys (2005)
shorter conflicts?
summarizes seven of them: Resources can finance conflicts, influence chances of
victory, affect the cohesiveness of rebel organizations, be an instrument in peace
negotiations, impede peace negotiations (if conflicting groups gain from ongoing
conflict), cause foreign actors to support conflict or peace negotiations, limit trade
and, hence, prolong conflict. His analysis shows that natural resources are associated
with shorter conflicts. This result runs counter to many observations in the literature.
Disaggregating conflicts in those countries with abundant oil and diamond production and those without these resources, one can observe many short conflicts in the
former and many long conflicts in the latter. This is again due to the independent
variable: Primary commodity exports include agricultural products and resource stock
includes land. Oil and diamonds are associated with shorter conflicts because they
make military victory easier. Humphreys assumes that diamonds make rebel organization less cohesive, facilitating victory over them, and that the future value of oil
reserves attracts external actors who are interested in a short conflict in order to
exploit the resource faster.
Intensity of conflicts:
Conflict Severity: Few researchers have so far explicitly assessed the impact of resource
abundance on conflict severity. One qualitative study by Addison et al. (2003) and one A matter of benefit
quantitative study by Lujala (2009) refine the dependent variable. Addison et al.
theorize about low-intensity conflicts in a mathematical model. They focus on
conflicts involving minerals (lootable resources) in Africa, pointing out that there are
many forms of conflict between the extremes peace and war. Sometimes, belligerents are not interested in winning armed conflicts in the short-term but rather in
sustaining them for longer periods. They keep losses at a minimum while gaining
through the continuation of conflict. This means that conflicts have fewer annual
battle deaths but they last longer. An insecure environment may help both rebels and
the government to remain powerful. It discourages other actors from seeking
revenue, such as mining companies. If the conflict was ended, opportunities for
accumulation could disappear and competition would probably increase. Military
forces and rebels may even cooperate for some time if their interests complement
each other. An incentive for looting are increasing resource abundance and higher
resource rent values. The prospect for peace diminishes when grievances for
example an unequal distribution of resource rents and costs of extraction exist.
Lujala (2009) examines how oil, gas, gemstones and drugs are related to the total
number of combat deaths (over the course of the conflict) and the average daily
combat death rate. Results are different for each of the resources. Gemstone mining
increases the total number of deaths. But in contrast to findings by Addison et al.,
gemstones do not entail a lower death rate. Lujala suggests that their results differ
because Addison et al. only refer to cases where looting is a motivation for rebels.
Lujala confirms a lower death rate with regard to drug cultivation, which also correlates with fewer deaths. Oil and gas production increases the number of deaths and
the death rate, especially in secessionist conflicts. A higher number of deaths is
generally due to the longer duration of gemstone, oil, and gas conflicts.
Why are conflicts in regions of oil and gas production particularly severe? Oil and gas
are very valuable resources to both the government and rebels. In order to use the
resource, rebels have to gain full control over production sites. The government
invests heavily in defending its source of revenue, trying to end the conflict as quickly
as possible because foreign companies could withdraw from production. Hence, both
belligerents want a short war, accepting more severe means. Concluding, Lujala
stresses that the level of analysis, country- or conflict-level, is decisive. If oil and gas
production takes place inside the conflict zone, conflicts are more severe. If production is outside the conflict zone, however, oil and gas have the opposite effect on
conflict: fewer deaths and a lower death rate. One explanation, supported by state
capacity models, suggests that the government is unwilling or unable to defend
regions without oil and gas production with severe conflicts. Rebellion may be more
likely because the region is less protected, but rebel groups are also weaker because
they are easier to form.
3.2.2 The Independent Variable: Resource Characteristics and Selected Resources

A discussion of several dependent variables is useless if the central factors that
cause them, namely resources, are not specified. How accessible is a resource to
potential rebels? Where is production located? How valuable is the primary commodity? These and other questions have to be answered before engaging into
meaningful discussions.
3.2.2.1 Resource Characteristics
Resource accessibility In section 3.2.1 we referred to diffuse and point, proximate and distant resources.
They are part of what Le Billon (2005) calls resource accessibility. Diffuse resources are
spread over wide areas and produced by a large number of small operators (alluvial
diamonds, gems, minerals, timber, coffee, cattle, bananas, rubber), whereas point
resources are the exact opposite concentrated in small areas and in the hands of a
few producers (oil, gas, kimberlite diamonds, copper iron). Rebels can extract diffuse
resources directly because revenues are not as concentrated in the government. In
contrast, taking possession of point resources is only possible through theft or
extortion. But accessibility is additionally influenced by the resources geographical
location. Proximate resources are located close to the centre of power, distant resources in remote areas that are politically contested and near porous borders. Government
control is higher for proximate resources and, hence, illegal trade is more difficult. A
second broad category is resource profitability determined by legal and illegal resources, higher and lower value-to-weight ratios. In Angola, for example, government-controlled oil was more valuable than diamonds funding rebels, which is one reason why
government forces defeated rebels. Illegal resources are more profitable to rebels
because governments cannot afford to engage in illegal trade. Legal resources, in
turn, can be traded by governments, and they usually yield higher prices.
A qualitative study of Angola and Latin American countries supports these observa- Mobility, high rents and porous borders
tions, but shifts the focus from rebels to weak states: Socio-economic concentration
affects state capacity adversely and produces grievances. Mobility, expressed by high
rents and porous borders, makes diversion of revenue flows more likely (Auty 2005).
Point resources are capital-intensive and often owned by the government, which
spends windfalls ineffectively and distributes rents unequally in countries that are
marked by corruption. Once a rebel group has established a monopoly of high
value-to-weight resources and entered (international) markets, facing few government
regulations, conflicts are prolonged.
Lootability, obstructability,
Another resource characteristic has been suggested, which includes diffuse, distant
weight
resources. Ross (2003) refers to lootability to describe those resources that can be
extracted and transported relatively easily by small groups of unskilled workers. The
lootable resources drugs, especially cocaine and opium, and diamonds were the ones
most often leading to civil war between 1990 and 2000. Less significant are obstructability (risk of interrupted transportation) and legality (tradable on international markets). High value-to-weight resources (drugs) can be transported by plane and are,
hence, more difficult to obstruct than low weight-to-value (minerals) resources
transported by trucks or trains. Liquid resources in pipelines (oil) face the highest risk
of being blocked. Most resources are traded legally, with the exception of drugs.
These characteristics can either advantage the government or rebel groups in civil
war. In a more recent comparative analysis, Ross (2004) partly qualifies his previous
conclusions. Oil increases the risk of conflict, while agricultural commodities do not.
Lootable resources (diamonds and drugs) only have an effect on conflict duration, but
not on onset. His finding that oil exports, and not primary commodity exports in
general, seem to predict civil war lends support to the state capacity model advanced
by Fearon (2005) and others. A quantitative study by Welsch (2008) confirms the
insignificance of agricultural commodities and the importance of oil in predicting
conflict (with at least 25 battle deaths) between 1989 and 2002. Contrary to most
other studies, oil is classified here as a lootable resource, as pipelines or extraction
sites can easily be obstructed. In contrast to Ross (2004), other mineral resources
(bauxite, gold, and diamonds) were also significant concerning the onset of civil war.
This may be due to the different proxies for resource abundance (primary commodity
exports vs. stock of subsoil assets) or the different thresholds for conflict. De Soysa
(2002b) uses similar proxies for abundance and conflict and comes to the same
conclusion as Welsch rising levels of mineral resources increase the risk of conflict.
But when energy (oil, gas, coal) and mineral (bauxite, copper, gold, among others)
rents are disaggregated and the period is extended (1970 to 1999), energy rents are
more significant (de Soysa/ Neumayer 2007).
Oil export and oil production This discussion is reason for a small side note on measures of resource abundance.
lead to conflict Fearon (2005) criticizes using the share of primary commodity exports in GDP.
Other authors have proposed to use the location of certain resources (Lujala 2010),
resource production (Humphreys 2005), or natural resource stocks per capita (de
Soysa 2002b). While numerous analyses have tested the primary commodity exports
variable with ambiguous results - oil export and oil production are significantly
related to conflict (see Table I. in Ross 2004). Hence, there is need for further quantitative studies examining specific resource exports as well as alternative measures. A
study by Basedau and Lacher (2006) criticize that all these measures of resource
dependence do not reflect how well a country is endowed with resources. When
utilizing potential per capita income through oil and gas exports, conflict is less likely
where incomes from oil and gas are higher. Dependent, rather than resource abundant, countries face higher risks.
Location of resources Whether the location of resources inside or outside the conflict zone determines civil
war or not has been hardly tested. Rebellion may be more attractive and feasible in regions
with abundant resources, independent of the resources lootability. In order to test the
effect of resource abundance on conflict onset and duration, Lujala (2010) uses location,
which is an alternative approach to previous studies. Civil wars (with at least 25 annual
battle deaths) between 1946 and 2003 were likely to occur in regions with onshore oil and
secondary diamond production. In addition, secondary diamonds, other gemstones, oil,
and gas inside the conflict zone prolong civil war. Secondary, or alluvial, diamond
production occurs where diamonds are part of loose soil or sediments. This does not
require much capital investment the diamonds are picked by hands and shovels from
fields. Primary diamonds, found in kimberlite, have to be mined, requiring investment in
technology. Their production is neither significant for onset nor for duration in this
analysis. A novel finding is that non-lootable resources (oil and gas) affect rebel movements and the duration of civil war. Lujala offers three explanations: first, rebels are
interested in future gains; second, rebellion can be financed by selling future extraction
rights; and third, oil production may be more lootable than previously assumed.
3.2.2.2 Selected Resources

Oil and Gas: In addition to the already mentioned quantitative studies that see a
Oil and gas under scrutiny in
selected countries
relationship between oil abundance and conflict, there are further quantitative and
numerous qualitative studies confirming the results and speculating about mechanisms. These qualitative studies show that there is a fine line between greed and
grievance. In Angola, for example, resources were a solution to finance rebellion
after the major Cold War powers had ceased to do so. Offshore oil production
benefits the government, whereas diamonds have mostly sustained a rebel group, the
National Union for the Total Independence of Angola (UNITA). Both sides financed weapons, fuel, food, and allies with natural resources. Before the government was able to
claim victory in 2002, the parties fought a highly intense war in the first two years
between 1992 and 1994 with more than 300,000 casualties, as well as periods of low
intensity (Renner 2002; Cater 2003; Le Billon 2005). Funding by oil, either to expand
military expenditure or to sustain political leaders patronage networks or both, has
also been central in Cte dIvoire (Guesnet et al. 2009), Nigeria (Renner 2002;
Ikelegbe 2006), and Chad (Frank/ Guesnet 2009). The National Liberation Army (ELN)
and the Revolutionary Armed Forces of Colombia (FARC) gained through taxation of
resource production and extortion, prolonging low-intensity violence in Colombia.
(Renner 2002). This illustrates that rebels can also gain from, in Ross words, nonlootable resources. A weak states mechanism in oil-rich countries is not necessarily
the case, as argued in a quantitative study of oil prices in Colombia. It examines how
price changes between 1997 and 2005 affected armed conflict (Dube/ Vargas 2007).
Theoretically, a rise in oil prices increases the risk of conflict by raising government
revenues, which present a higher incentive to contest local governments. Since oil is a
capital-intensive commodity, the government is most likely to control revenue flows.
Dube and Vargas show that higher oil prices do not affect wages in oil regions, but
increase government revenues and spending. But the second assumption, increased
government attacks and police presence, cannot be confirmed. Instead, oil prices are
linked to paramilitary attacks, even when controlling for drugs.
The beginning of conflict often has to do with grievances arising from resource
extraction, subsequent distribution of rents, and corruption. Exploitation of gas in
Indonesia displaced the indigenous population and caused environmental problems
(Renner 2002). Aspinall (2007) argues in contrast to Renner (2002) that gas exploitation was not the cause for conflict but rather a justification to start a separatist
conflict. The real reason was a process of identity construction. In Chad, a rentier
state with high dependence on oil, inadequate institutions, and repression, rebels
could only gain access to resources, and power, by contesting the government
(Frank/ Guesnet 2009). In Nigeria, traditional forms of livelihood were pushed aside
by oil production (Renner 2002). In short, whenever resource extraction happens at
the expense of scarce resources, particularly land, problems described in the scarcity
discourse arise.
Gas extraction
The case of Nigeria The case of Nigeria exemplifies that the mechanisms at work are not easy to disentan-
gle. Grievances, a weak state, and greed all play a role in conflict onset and duration
(Ikelegbe 2006). Ikelegbe finds that equal distribution of benefits were a primary
motive for insurrections in the beginning. In addition, the Nigerian rentier state is
an example of political and economic struggle for the distribution of oil rents. Most of
the time, this produces weak structures, including low legitimacy, accountability, and
stability. Incompetent management of oil rents and unequal treatment of a large part
of the population can easily result in violent conflict, while personal enrichment is
likely to prolong armed rebellion. Because communities were not compensated for
environmental degradation in the beginning, impoverished groups started resistance
against the state and oil-producing companies, and ethnic conflicts over resource
control. This disrupted or even stopped oil production. Multinational oil corporations
responded by appeasing insurgents in the form of benefits. From this point on,
conflict was sustained because these compromises signalled a higher reward for more
intense violence and attracted opportunistic rebels. Violence became a way to be
compensated for grievances, to get a share, and to finance more violence. The state
was unable and unwilling to stop conflicts, either because their military force generated more conflict or because corrupt agents were involved in rent-seeking. The
so-called economy of conflict was built on several objectives: higher benefits, better
distribution, a place in illegal trading, and control over resources.
Diamond wealth in Africa Diamonds and other minerals: Sierra Leone is widely known for its high quality blood
diamonds, but also for recurrent rebellions, banditries, and coups throughout the
1990s. The Revolutionary United Front (RUF) sought to control diamond production
in order to finance arms and for individual enrichment. Soldiers often collaborated
with rebels, engaging in looting and illegal mining (Renner 2002; Cater 2003). It is
central for rebel looting to occur, however, whether the resource is lootable or not.
Lujala et al. (2005) point out that primary diamonds, which are more labour- and
capital-intensive than secondary diamonds and hence more difficult to extract, make
conflict less likely. While Sierra Leone is rich in secondary diamonds, Botswana has
predominantly primary diamonds. Diamond production in general is associated with
ethnic civil wars, but only after it has started. The discovery of diamond deposits does
not affect the risk of civil war. A comprehensive discussion of the conditions for
diamond conflicts is also provided by Le Billon (2008). In Cte dIvoire, diamonds
and gold, which are concentrated in the rebel zone, benefited above all rebel forces
due to their regional concentration. Although cocoa was more profitable, in part due
to its legality, the pointness and illegal status of these resources advantaged rebels
relative to the government, which cannot engage in illegal trade (Guesnet et al. 2007).
Another prominent example is the DR Congo with its abundant deposits of copper,
coltan, cobalt, gold, and diamonds, among others. In the two wars starting in 1996
and 1998, rebels already benefited from resource deals even though they did not
control the country. Other African countries became involved and used the opportunity to plunder. As a consequence, allies were rewarded with rights to resources
(Renner 2002; Cater 2003).9 As the case of the DR Congo has shown, diamonds may
be at the centre of media attention, but other minerals can also be the source of
intense conflict. A widely discussed example of a conflict involving copper is Papua
New Guinea, specifically the island Bougainville (Renner 2002; Regan 2003; Banks
2008). Bougainville is a good example for a separatist conflict where ethnic aspirations are combined with unfair resource extraction.
Metals and minerals
Timber and agricultural products: Apart from oil, timber has been cited as a reason for
weakened state capacity and conflict (van Klinken 2008). Qualitative observations
show that timber, an easily lootable resource, was a main cause for pogroms against a
minority in Indonesia in 1996-97 and 1999. Although the central government was
never directly involved in conflicts, it contributed indirectly due to its inability to
contain ethnic violence. It was especially weak in timber-rich regions because local
leaders financed their offices with illegal timber trading and retained taxes from
reforestation. Local autonomy was both a cause for and a consequence of rent-seeking. On the one hand, local autonomy renders rent-seeking possible. On the other
hand, local elites remained powerful by controlling the illegal timber market. When
Indonesia underwent political transition, local elites seized the opportunity to expand
their power. Timber was strategically used to buy military and police protection in
support of an ethnic group, trying to eliminate rivals. In sum, by the time violence
broke out, abundant timber resources had strengthened factions and weakened
central government control.
Timber and agricultural

products
Colombia is not only vulnerable to conflict because of oil but also due to coffee, a
labour-intensive commodity. Theoretically, a fall in coffee prices increases the risk of
conflict by decreasing wages, ultimately lowering opportunity costs to potential
rebels. Dube and Vargas (2007) point out that declining coffee prices have a substantial effect on agricultural wages in agricultural regions. In contrast to oil, coffee prices
do not affect government revenue or public spending. Hence, lower wages from
coffee production might make rebel recruitment easier. Changes in the price of coffee
have indeed increased the number of guerrilla/paramilitary/ government attacks,
clashes among these groups, and war-related casualties. Similar to coffee, cocoa was a
reason for conflict in Cte dIvoire, in particular access to cocoa land. In addition, it
financed both the government and rebels after the conflict had started (Guesnet et al.
2009). Timber, coffee, tea, and palm oil offered opportunities for exploitation and
enhanced financial feasibility in the DR Congo (Renner 2002).
9 Renner uses resource wealth, richness and abundance as synonyms. Cater writes equally oil-rich as resourcerich and abundant.
3.2.3 The Intervening Variable: Institutions

Why do some resource-rich So far we have illustrated cases where resource abundance has had detrimental effects
countries foster peace? on peace and mechanisms that mediate this relationship. In doing so, we highlighted
resources with a particularly high likelihood of causing conflict (oil and diamonds),
and presented countries with a recent civil war history (for example Angola, Nigeria,
DR Congo, and Sierra Leone). As with resources and economic growth, abundance
does not inevitably lead to an aggrevation of the situation. There are many cases
where the potential for civil war is low despite a rich endowment in natural resources,
such as Botswana, Ghana, Namibia, South Africa, and Venezuela, to name just a few.
The following section gives an overview of factors influencing whether resource-rich
countries are able to sustain peace or not. Governments face certain incentives that
induce them to prefer some governance options over others. While sustaining power
and creating political stability is often their highest priority, this may not be the most
desirable outcome for a large part of the population.
Specifications of the Snyder and Bhavnani (2005) established a guiding framework regarding this
mode of extraction question. They focus on government agents who are in control of revenue flows,
and ultimately rebel organizations. Civil war is less likely when (1) rulers can make
use of non-lootable resources, (2) lootable resources can be easily taxed, and (3)
governments invest revenues correctly. In other words, conflict potential depends
on a countrys resource profile, the prevalent mode of extraction, and patterns of
government spending. As suggested by state capacity models, which assume that
rulers use revenues irresponsibly, the government may be in control of much of the
(non-lootable) resource deposits. Snyder and Bhavnani add that it can also benefit
from lootable resources, especially if production is industrial and can hence be
taxed. A country with only lootable resources that are exploited by artisans is more
prone to conflict because the government has fewer revenues. However, no matter
how the resource profile is structured and how resources are extracted, government
spending can significantly alter the risk of conflict. Investments may (3a) increase
the governments ability to generate tax revenues in the future, (3b) strengthen
military and police forces to punish tax evaders, contain illegal trade, provide
investment security, and suppress rebellion, (3c) take the form of social welfare. (3c)
poses a trade-off with (3a) and (3b): Social welfare may reduce grievances but it
does not yield immediate return in the form of revenues. Hence, it is crucial to
proportion investment correctly. The analysis further contrasts the cases of Ghana
and Guinea with Sierra Leone in order to provide initial evidence. All three countries had low per capita incomes in the 1990s and were rich in diamonds, but only
Sierra Leone experienced civil war. This was because Sierra Leone lost tax revenues
from diamonds starting in 1985. Production shifted from the hands of a small,
easily manageable group to a large number of small extractors. Guinea, in contrast,
has a non-lootable resource, bauxite, and diamond extraction is largely industrial.
Much of Ghanas revenues stem from gold, which is extracted by large industries.
Snyder (2006) further specifies the mode of extraction with regard to lootable
Extraction modes
resources (diamonds, timber, and drugs). He raises the question why civil war
occurred in specific periods and countries although the resource mix had not
changed. The answer is: Institutions of extraction can cause a fiscal crisis if revenues
for the government are reduced, and they can facilitate rebel organization. While
Snyder and Bhavnani (2005) only distinguish two modes of extraction industrial
and artisan Snyder develops four categories: (1) private extraction, (2) public
extraction, (3) joint extraction, and (4) no extraction. The government receives no
revenue if private actors control the resource, part of the revenue if it is able to tax,
and all of the revenue when it fully controls extraction. No extraction can be used to
apply pressure on private actors and force joint extraction. Even though the government would prefer public extraction, this is not feasible because lootable resources are
difficult to control and governments cannot officially extract illegal resources. Their
next best choice is joint extraction, which rulers try to establish, thereby maintaining
peace. In Burma, drug production helped to end civil war, and joint modes of
extraction made the country more stable in the 1990s. Sierra Leone, however, was
stable until joint diamond extraction collapsed at the end of the 1980s. There are
several reasons why this institution could break down: Private actors gain strength
due to extraction, the value of the resource decreases, leadership changes, and
grievances. An ensuing fiscal crisis in Sierra Leone increased the risk of civil war.
Although Dunning (2005) does not examine the conditions for conflict directly, he
analyses political stability. Assuming that investments into economic diversification
can reduce stability, government agents face an important choice: Either they reduce
resource dependence or they sustain power. Diversification is only considered if
resource prices (and revenues) are volatile, if there is few political opposition, and if
the non-resource sector is well developed prior to public investment. Rulers in
Botswana did not face an incentive to invest in diversification because resource
revenues were not volatile and political elites are more loyal than in other resourcerich countries. Although rulers in former Zaire (today: DR Congo) had to deal with
fluctuating copper prices, they did not diversify because challenges to the elite were
greater than in Botswana and the non-resource sector was poorly developed. Hence,
resource dependence was a better way to secure power. Finally, Indonesia allowed
diversification to some extent because oil and agricultural product prices were
volatile, the nonresource sector well developed, but political opposition weak. The
risk of political instability may, therefore, has been highest in diversified Indonesia.
Political stability
Ruler behaviour is also central to a quantitative analysis by Sarr and Wick (2010).10
Rulers face a trade-off between public good provision and repression. Investment in
public goods is pursued by rulers if they are less effective than the population in
controlling resources and if the nonresource sector is productive.
Rulers behaviour
10 The authors use the terms resource wealth, rich und abundance interchangeably.
If rulers are relatively ineffective, they can create incentives public goods to
divert a populations time and productivity to non-resource sectors. Between 1970
and 2000, effective rulers in resource-rich countries (the sample covers 67
countries, including Angola, Congo Brazzaville, Cte dIvoire, Sierra Leone),
provided fewer public goods than ineffective ones (resource abundance is measured as the share of resource rents in GDP, government effectiveness as the
number of soldiers per 1,000 citizens, and public goods include power generation,
transportation, and education). Hence, conflict should develop in situations where
ineffective rulers try to repress a relatively more effective population instead of
providing public goods for the nonresource sector.
Stability and governance A quantitative study by Basedau and Lacher (2006) tests some parts of the above-
mentioned theoretical considerations. First, they confirm that some oil dependent
countries, namely those that are really rich in terms of oil income per capita, show
more signs of regime stability in the period between 1990 and 2002. Political stability
and absence of violence are measured with the World Bank Governance Indicator. If
dependent countries are more prone to conflict, it may be declining/fluctuating prices
or dwindling reserves that are a risk factor. Second, while state capacity models claim
that oil-rich countries use revenues to suppress opposition and favour small groups,
high revenues can also be invested in public good provision. In countries with high
oil incomes per capita, revenues are indeed spent on goods benefiting a large part of
the population, such as security and health. These factors enhance stability and lower
the risk of conflict. In countries with low oil incomes, but high dependence measured in share of oil exports in GDP , the state capacity model is confirmed. Oil also
does not seem to be linked to grievances (repression of civil liberties). Contrary
examples to these quantitative results are Equatorial Guinea and Gabon: Large oil
incomes are still distributed among a small elite, or shared among the elite and public
goods, but they have not caused violent conflict. In Equatorial Guinea, prospects of
diminishing oil supplies and power relations before oil was discovered led to a
distribution of oil revenues among the elite, which then bought protection against the
opposition. Hence, more generous policies may even have triggered rebellion. In
Gabon, both forms of spending persisted, but the country still remained peaceful.
Wide-spread violence was contained because the political elite includes major ethnic
leaders and powerful opponents, who were promised a share, and because of external
intervention by France. Outside assistance seems to be tested quantitatively significant for maintaining stability (Basedau/ Lay 2009). Other intervening conditions are
regime type and socioeconomic fault lines. Transition from a (stable) authoritarian
regime to democracy, sometimes called semidemocracy, offered the opportunity for
conflict in the Republic of Congo, while class interests, which were stronger than
ethnic divisions, helped ending rebellion (Englebert/ Ron 2004).
How resources are governed obviously plays a large role in assessing the likelihood of Governance determines the
likelihood of conflicts
conflict. Franke et al. (2007) approach the question quantitatively. They show how
resource governance mediated the relationship between oil/ gas/ agricultural products and conflict between 1996 and 2006. Resource governance includes general
governance variables (regime type, political rights, civil liberties, press freedom,
freedom of assembly, workers rights) and resource management variables (resource
regime compliance, resource independence, land protection, redistribution of resource
revenues). Good resource governance not only decreases the risk of conflict onset, it
also significantly and negatively related to conflict duration and severity. Resource
revenues are more often invested in health care and education in these countries, and
spend for social welfare rather than military capacities.
3.3 Negative Relationship and Reverse Causality

Could resource abundance reduce the risk of civil war? Regan and Norton (2005),
initially assuming a positive relationship, theorize that diamonds, gemstones, and
opiates may be sources of civil war funding. A quantitative analysis with data from
the Minority at Risk project, including the years from 1976 to 1997, neither predicts
protest nor rebellion strongly. The onset of civil war is even likely to decrease in these
countries. The authors speculate that this unusual result may be due to the inclusion
of developed and less developed countries as well as different resources. While
gemstones are primarily mined in developed countries, which are more likely to have
non-violent protests, opiates are produced in less developed countries where rebellion
and civil war are more frequent.
Regan and Nortons results are supported by Brunnschweiler and Bulte (2009), who
tend to support scarcity and grievance theories. They use the same dataset as Collier
and Hoeffler (2004), including minor conflicts (at least 1,000 total battle deaths) and
major conflicts (at least 1,000 annual battle deaths) for 1960 to 2004, and excluding
diamonds. But while Collier and Hoeffler (2004), and many other scholars, utilize
primary commodity exports as independent variable, Brunnschweiler and Bulte
employ a different measure of resource abundance the discounted value of the
future flow of resource rents. The results of a quantitative analysis show, first, that
countries with abundant resources are less likely to be involved in civil war because
abundance has a positive effect on income. Potential rebels may be satisfied with a
higher income or rulers may be better able to oppress rebellion. Less provocative is
their second result that civil war increases dependence on resources, no matter
whether the country is resource-rich or resource-poor. They suggest that investments
in the primary sector may not be as vulnerable to political instability as in other
sectors. Hence, economic diversification and low dependence are key to economic
success and peace. The deviation from other researchers findings is probably due to
the independent variable. It only exists for 100 countries. Brunnschweiler and Bulte
admit that future rents may be easier to compute in peaceful countries.
Positive effects of resource

abundance?
Oil weakens the state Thies (2010) tests the state capacity mechanism using Fearon and Laitins (2003) data
set for 1960 to 1999. Civil wars with more than 1,000 total battle deaths, at least 100
per year, and at least 100 on each side, are considered. State capacity is not measured
by income per capita, as previously done by Collier and Hoeffler as well as Fearon and
Laitin, but by government share (amount of government expenditure relative to
overall consumption), total revenue (governments income), tax ratio (tax revenue as a
percentage of GDP), and relative political capacity (an index comparing states with
similar levels of development and resources). Due to these new measures of state
capacity, Thies challenges previous findings, particularly those of state capacity
proponents. First, he shows that primary commodities and state capacity do not
influence the onset of civil war. An important exception is oil. Second, almost all
primary commodities, including oil, strengthen states whereas conflict weakens them.
Hence, oil abundance increases the likelihood of civil war without affecting state
capacity. Thies proposes the following, potential mechanism: rebels and rulers
compete for primary commodities, the former to gain materially and the latter to
sustain revenue flows. When rulers face opposition, they devise property rights so
that they stay in power, effectively preventing conflict.
Di John (2007) neither supports an alleged relationship between oil and conflict nor
does he approve of common theoretical explanations. Comparing studies and cases,
he finds that the relationship is not robust. Even where the variables are correlated, oil
may not cause civil war. Countries rich in oil do not always perform poorly in terms
of economic growth, they are not particularly susceptible to corruption, and they are
not stable authoritarian regimes. All of these mechanisms have been argued to cause
civil war, but Di John considers them a dissatisfactory explanation. Both the looting
rebels and the state capacity models face severe shortcomings. His arguments are
underpinned by a quantitative study, in which oil abundance and corruption strengthen governments and reduce the risk of rebellion (Fjelde 2009). The political elite may
use economic incentives strategically to induce cooperation and loyalty. Conflict (with
at least 25 annual battle deaths) as well as civil war (with at least 1,000 total battle
deaths) are less likely to occur when oil production and corruption coincide, although
oil production and corruption increase the risk of conflict when treated separately.
Better access to resources as an Conflicts where economic interests are at the centre may be ended using natural
incentive to stop fighting resources, as in Burma. Sherman (2003) shows that self-interests can be used to
establish preliminary peace. Conditional upon the cost-benefit ratio, rebels are more
willing to stop fighting when they are offered better access to resources. The Burmese
government, fighting 30 armed rebellions, established the State Law and Order Restoration Council, which negotiated cease-fires with many groups. The better suited the
economic incentives, the longer peace will last. The terms of the cease-fires were
different, but mainly included tolerance of illegal activities, side payments in the form
of timber and mineral concessions, and business partnerships between state agents
and rebels. Additionally, the state accepted rebels armament and control of territory
and promised future negotiations for political rights.
3.4 Conclusion
With regard to resource abundance and conflict, scholars agree that some locally
At risk: States with rebel
movements and lootable
abundant natural resources increase the potential for conflict through several,
resources
coexistent mechanisms. Quantitative studies are only meaningful if the independent
and dependent variable are specified. So far, however, researchers have not agreed on
a measure of resource abundance, and have neglected conflict duration and severity.
Hence, results are mixed and statements about the relationship between abundance
and conflict cannot be made with confidence. First results indicate that resources may
prolong a conflict and make it more intense depending on the resource. Oil and
diamonds have been studied separately with regard to conflict onset in both quantitative and qualitative approaches. But quantitative studies testing resource characteristics are rare. Even more work is left for studying conditions that mediate the relationship. The role of external and internal actors is particularly important for policy
recommendations. Some valuable information could come from qualitative studies
that present a negative relationship and its conditions in order to illustrate how a
countrys resource abundance can be used to achieve peace.
President Dr. Ernest Bai Koroma, Sierra Leone, focuses on increasing the share of governments revenue from the management of natural resources (Picture: GIZ, Lutz Neumann).
Natural Resource Governance Mechanisms and Policy Recommendations 83

Natural Resource Governance Mechanisms and Policy Recommendations
How can the resource curse be avoided?
Which governance mechanisms prove useful?
What impacts do transparency efforts have?
Do they help stabilizing and developing postconflict as well as least developed countries?
1. Introduction
As we have shown in the previous chapters, a direct, linear and automatic relationship
can neither be assumed between natural resource wealth and economic growth nor
between natural resource scarcity or wealth and conflict. Nonetheless, resources have
been identified to be possible impediments for economic development as well as
cause and accelerator for conflicts, whether scarcity-induced or abundance-induced.
In a given set with other factors, preconditions, circumstances and processes, natural
resources have triggered, intensified, or extended conflicts and impeded economic
growth. Thus, the two inferential questions are: (1) How can natural resource wealth
contribute to economic growth and development? (2) How can conflicts over resources be prevented or contained?
How to prevent conflicts?
Countless theoretical and empirical studies have been dedicated to answering these
questions. In the following section, we will outline the most acknowledged natural
resource management and governance strategies for both resource scarcity and
resource wealth. The selected research papers and studies contain meaningful
recommendations and/ or analyses of the proposed instruments and mechanisms.
Our overview reveals strong desiderata for future research: Most of the literature has
a strong recommendation character; many studies are written rather like resource
management manuals than analytical analyses. But few studies are dedicated to a
systematic, comparative evaluation of different mechanisms across countries. The
identification of success stories and failures is often highly anecdotal. Therefore, we
find considerable need for more systemic, cross-country analysis and evaluation of the
effectiveness of different policy instruments to tackle the negative spillover effects of
both resource wealth and scarcity. While we do not propose the feasibility of a
one-size-fits-all approach in overcoming the resource curse, a cross-country, crossinstrument comparison of countries with similar starting conditions might reveal
interesting new insights into resource management and governance.
Selected Literature on Resource Management Tools
Instruments
Literature
Managing Resource Scarcity

Community-Based Natural Resource Management
General Literature
Fisher et al. (1999)

Kumar (2005)
Weisshaar (2008b)
Gruber (2010)
Water Management
Bge (2005)
Hirsch et al. (1999)
Kiteme and Gikonyo (2002)
Scheumann/ Neubert (2005)
Klaphake (2005)
Mostert (2005)
Grossmann (2005)
Kameri-Mbote et al. (2007)
Forest Management
Huggins et al. (2005)

Kant and Cooke (1999)
Weisshaar (2008b)
84 Natural Resource Governance Mechanisms and Policy Recommendations
Instruments
Literature
Managing Resource Abundance

Domestic Economic Instruments
Weisshaar (2008a,b)
Kolstad/ Wiig (2009)
ODI (2006)
Humphreys et al. (2007)
OECD (2008)
Frankel (2010)
Economic and Export Diversification
Osakwe (2007)
Bonaglia/ Kiichiro (2003)
Privatization

Stiglitz (2007)
Karl (2009)
Host Country Agreements
ODI (2006)
Fiscal Management
Mahon (2005),
Brahmbhatt/ Canuto (2010)
Dabn/ Helis (2010)
Strmer/ Buchholz (2009)
Natural Resource Funds
Tempel 2005
Asfaha (2007)
Humphreys and Sandbu (2007)
Bell and Faria (2005, 2007)
Mogae (2008)
Maconachie/ Binns 2007
Jackson (2007)
Brahmbhatt / Canuto (2010a, 2010 b)
Gelb/ Grasmann (2010)
Direct Distribution
Sala-i-Martin/ Subramanian (2003)

Heuty (2007)
Monitoring and Transparency Initiatives

Transparency Initiatives
Franke et al. (2002)

Collier et al. (2003)
Dunning (2005)
Guesnet et al. (2009)
Liebenthal et. al. (2005);
Bell/ Faria (2005)
Karl (2007)
Johnston (2007)
Shaxson (2007)
Heuty (2009)
Kolstad/ Sreide (2009)
Prendergast and Lezhnev (2009)
Mller (2010)
Igwe (2010)
Public Awareness Initiatives
Hall (2010)
Prendergast (2009)
Certification Schemes
Bge et. al (2006)

Brzoska/Paes (2007)
Crossin/ Hayman/ Taylor (2003)
de Koning (2008)
Haufler (2010)
Heinke (2008)
Garrett (2008)
Franken (2009)
Custers/ Matthysen (2009)
Hilson/ Maconachie (2009)
Paes (2005)
Sullivan and Atama (2010)
Industry and Corporate Responsibility
Franke, Hampel-Milagrosa, Schure (2007)

Wilson Center (2008)
2. Addressing the Problems of Resource Scarcity

Scarcity of natural resources poses different challenges to users, producers and
Scarcity affects the people
policy-makers than resource wealth does. The scarcity literature focuses foremost on and living conditions
the essential resources water, land and forest the so-called common-pool resources
- which have a direct effect on the population and its living condition. A mere
top-down process to tackle the problem is no longer recommended by scholars given
the lack of governance capacity of governments in many developing countries. On the
contrary, different strategies have to be considered to avoid allocation and access
conflicts. Communal resource governance systems and public-private partnerships are
the two-most debated strategies to provide a fair approach to managing scarce
resources and preventing conflicts. The basis for multi-stakeholder management of
scarce resources are strong institutions and wide support for the partnership, as well
as accountability and monitoring networks.
The following summarized findings of the literature are insofar problematic as they
are often highly country- and resource-specific. What has worked in one country
might not necessarily work in another. The same holds true for different resources:
What might work with regard to one resource might be useless when we deal with
other resources. Likewise, success is context-specific, being determined by geographic
conditions, political circumstances, and quality of institutions to name just a few
context variables.
2.1 Community-Based Natural Resource Management, Benefit-Sharing and PPPs

CBNRM a framework for
Community-Based Natural Resource Management (CBNRM) offers a framework
local participation
for dealing with conflict in a participatory and equitable manner, particularly when
you are dealing with conflict with regards to resource use and access [] Natural
resource-based institutions are critical for conflict mitigation, especially in areas
where there is a high dependence by the local or the rural dwellers on natural resources, as Rachel Weisshaar (2008b) quotes a representative of the World Conservation
Union. Most prevalently in the literature, community-based management of water and
land/ forest resources will be presented in the following section. According to Kumar
(2005), CBNRM programmes are based on the assumption that local communities
have a greater interest in the sustainable use of resources than central governments
that are out of reach. Local communities might be more cognizant of local ecological
processes and practices and can manage resources more efficiently through local or
traditional forms of access.
While generally lauded, some observers are less optimistic about these initiatives.
Kumar (2005), for example, points out that not all community decisions and actions
with regard to natural resources are benign. The author also cautions that communities are often less homogeneous than assumed. Regulations and laws by central
Government institutions
governments can also operate counterproductively. Furthermore, many mistakes can

be made with regard to source resource management on a local basis. Tyler (1999)
summarizes problematic government interventions and their impacts on local
resource conflicts from contributions to Cultivating Peace Conflict and Collaboration in Natural Resource Management (edited by Buckles 1999). Public policies have
to consider the context for successful resource management. If there are severe power
imbalances between groups, a source of conflict in the past, policies usually support
one side, lose legitimacy, and may even exacerbate conflicts. If policies do not prefer a
group, they may be ignored or interpreted in the dominant groups interest. Where
issues of power are not central to conflict, government institutions can nevertheless fail.
Tyler (1999) offers an overview of seven common mistakes: (1) Agents design policies to
represent their objectives, which might cause conflict with local level interests. (2)
Decisions on the basis of incomplete information and/ or understanding create conflict
during implementation. (3) Policies neglect interests of weaker resource users, favouring
investors or powerful users instead. (4) Displacement and migration due to government
policies can trigger conflict in the host area if there is no adjustment plan and displaced
or migrating populations lack understanding of the new communitys resource management, which could result in environmental degradation. (5) One agency is entrusted
with reforms, such as de-centralization, but affected institutions are not changed
resulting in confusion about responsibilities. (6) Poor communication from higher to
lower levels can impede implementation and cause differing interpretations of a policy,
which leads to conflict among resource users. (7) Lack of support in the form of
funding and training can either lead to no implementation or different implementation.
These aspects have to be taken into consideration in designing policies.
Closely related to CBNRM are the concepts of benefit-sharing or public-private partnerships (PPP). In the following, we will highlight one example for CBNRM, namely
forest management, and one example for PPPs and benefit-sharing, water management.
2.1.1 CBNRM: Forest Management

Shared benefits and The distribution of land is a common source of conflict and should be solved by land
responsibilities reforms ideally. As these are not always feasible, Huggins et al. from the ODI (2005)
recommend a transparent dialogue within the given country on governance and

reconstruction, as well as information-gathering, training and identification of
relevant personnel to lay the basis for an effective legal framework in respect of land
tenure and a system for participatory policy-development. Joint Forest Management
(JFM) is what Kant and Cooke (1999) describe as a conflict-minimizing mechanism,
sharing responsibilities and benefits from forest resources. This has been examined in
four different villages in India, showing that both formal and informal institutions,
transparent mechanisms and accountability helped reduce uncertainty and thus
conflict over the affiliation of forest resources.
In Indonesia, forest resources were managed through an integrated conservation and Success of CBNRM in shared
management systems
development program to adapt to the region, secure benefits for local people, gather
information, build consensus and to achieve collaboration of several actors. Regular
monitoring and evaluation of site-based interventions has provided proof of adequacy
and function of the community-based efforts to share information and include
different stakeholders. An important condition for success is the participation of
community and public agencies in the process (Fisher et al. 1999). According to
Weisshaar (2008b), Community-Based Natural Resource Management has proven
successful in Botswana, where poaching has decreased in those areas that were
managed with registered organizations, in contrast to other areas in the country,
where CBNRM has not taken place.
2.1.2 Benefit-Sharing and PPPs: Water Management

Public-private partnerships in resource governance are considered one of the more
Water as a source for
promising approaches to natural resource management and distribution. Particularly cooperation?
with the distribution of water resources, public-private partnerships have been
established to provide a multi-stakeholder communal management (Chan/ Pattberg
2008). The same applies to benefit-sharing of resource regulation, which has been
addressed by academic literature mostly in the context of transboundary waters, like
rivers and lakes. Klaphake (2005) finds in many case studies on water management
that benefit-sharing has proven useful to avoid conflicts. However, he finds that
cooperation emerged dominantly in the context of construction on rivers, or the
extraction of additional water resources. The construction of dams or use of water
force for energy production have repeatedly been achieved by cooperation between
states (for instance between Swaziland and South Africa in the Komati River Basin in
1992 and 2001; between Angola and South Africa in the Cunene River Basin in 2002;
between Egypt and Sudan on the Nile in 1959; or Mali, Mauritania and Senegal on
the Senegal River in 1972). Klaphake recommends economic calculations of cooperation outcomes, supporting organizations, inclusion of interest groups and the public
for the success of benefit-sharing systems, always with reference to the underlying
institutional and political framework.
Then again, in cases of severe water scarcity, cooperative projects are less common.
As Scheumann and Neubert (2005) recommend, governance of transboundary water,
precisely rivers and lakes, must include incentives for cooperation by benefit-sharing
agreements, strengthened information exchange and information management, and
improved organizations or fora for water management, like the Southern Africa
Development Community (SADC) Water Division, or the African Ministerial
Council on Water (AMCOW). Furthermore, sustainable fundraising for these
organizations, strengthened stakeholder sharing of water management, strengthened
and improved coordination of donors, and extended cooperation to include groundwater resources are recommended. The importance of benefit-sharing has been
Severe scarcity holds bigger

risks of non-cooperation
underlined by Klaphake (2005), while Grossmann (2005) singled out information

management as an important variable. Grossmann recommends several instruments
for the organization of information transmissions, including: documentation centres,
Basin Information Systems with guidelines and agreements on data harmonization, the
establishment of databanks and hydrological measurement networks and communal
Water Resources Assessments or Basins Studies which help examine development potentials
in the respective region. An Integrated Water Resources Management (IWRM) should
contain some of these instruments for better compliance of the involved actors.
Surveys by Mostert (2005) and Grossmann (2005) point to the relevance of coordinated and cooperative fora, as does the German development bank KfW (2002).
Hirsch et al. (1999), for example, stress the importance of communitylevel management of resources, which considers the respective terms in each individual case of
shared resources. In Nam Ngum Watershed Management in Laos, for example, different
approaches were combined to raise awareness amongst the local communities for
their resource use and to organize community-based supervision and monitoring
committees for land allocation and use of forest resources.
WUAs as multi- Kiteme and Gikonyo (2002) recommend Water Users Associations (WUAs) as a
stakeholder systems type of resource management, which has already been successfully applied in
Kenya. WUAs have been applied in the 1990s for the first time and have been
employed by the larger Water Awareness Creation Campaign Initiative. It involves a
multi-stakeholder society for the management of regional water resources, especially for rivers. WUAs are formed by the major water consumers of a given river and
are supposed to mobilize the local community, as well as to provide financial and
logistical support. An Executive Committee is elected to represent the major water
users and to deal with water-related issues, for instance pollution. A monitoring
mechanism is appointed to monitor and report all activities to the Committee
concerning the use of the water. Regular meetings and the reports to the Committee aim at avoiding conflicts caused by over-abstraction of water or illegal water
abstraction or delay of purchase of water permits.
Kameri-Mbote et al. (2007) have tested co-management of natural resources in
eastern and central Africa showing that conflict-minimizing strategies must include
all stakeholders in a participatory system, which are customary authorities, government officials, technical service agents and local NGOs. Accountability and communication networks are important to provide a network for the stakeholders. Besides,
the authors emphasize that there is no single model for social capital-building and for
developing local management agreements as every process to achieve stability needs
to be adapted to the certain framework given. Power relations and stakeholder
interests need to be carefully taken into consideration, and development agents have
to focus their actions on developing synergy between the public and private sectors,
reinforcing networks of local associations. Strategies need to integrate conflict
management into the conservation and development objectives of the region. The
authors warn that changes in water management systems might give certain elites
more power over the resources. As best practices, they single out (1) participation in
provincial and regional NRWM committees, (2) to enact laws on land use, and (3) to
partner with NGOs and the private sector for adequate management strategies and to
assist in developing prevention standards and financing conflict mitigation technologies through further research and evaluation.
3. Addressing the Pitfalls of Resource Abundance

As we have discussed in part B of this study, the resource curse as such is not inevitable. No one-size-fits-all
Adequate policy mechanisms and good governance can help resource-rich countries to approach for abundant
resources management
avoid or reverse the resource curse, for which underperformance or failure of governments is most often accounted for (IMF 2010). When it comes to the literature on
policies and instruments to tackle the resource curse, resources like oil, metals, and
diamonds stand at the centre of attention. Scholars agree that there is no one-size-fitsall approach for management of extractive industries resources (Weisshaar 2008a,
Weisshaar 2008 b), as these need to be country- and resource-specific. However, some
commonalities in the recommendations can be identified, including: sound economic
and monetary policy as well as fiscal management, good governance and capacity-building, diversification of the economy, direct distribution to the population, linking
resource revenue management to aid, and investment risk and conflict prevention
(Overseas Development Institute, ODI 2006; Weinthal/ Luong 2006). Humphreys et
at. (2007) mention similar mechanisms, including foremost transparency of negotiations, binding contracts between states and corporations, disclosure of calculations,
stabilization of expenditures, use of revenues for investment rather than consumption
to avoid Dutch disease problems, oversight of the public and public control, as well as
information, institutions like a resource fund management service and a global public
information office on oil and gas revenue management, and last but not least enforcement of stricter standards on multinational companies.
In the following, we divide governance of abundant resources into two sections: (1)
efforts in the domestic economic policy arena and (2) efforts, which involve external
actors in the management process. The former contain measures like a deceleration of
trade cycles, distributional policies and economic diversification. The latter refers to
transparency efforts through labelling and certification schemes and efforts to install
codes of conduct and conventions for responsible handling of natural resources, both
for corporations and the public. A word of caution is in order here again: Most
literature is highly country-specific, and there is a lack of cross-instrument, crosscountry comparisons.
3.1 Domestic Economic Instruments: Managing Windfalls and Volatility

Managing the extractive value chain includes the following steps: (1) deciding to
extract, (2) awarding the contract to explore and extract, and establish the legal and
financial terms governing those rights, (3) monitoring of operations, (4) collection
of taxes and royalties, i.e. managing receipts, (5) expenditure, distribution of
royalties and (6) utilization in sustainable projects (Revenue Watch Institute 2008;
Kolstad/ Wiig 2009).
Instruments should The literature identifies several instruments addressing the different phases of extractive
dampen the cyclical boom and value chain management. To dampen the cyclical effects and to prevent an overheating
bust effects of the economy during a boom period, the government can slow down the rate of
state-owned resource production and/ or the rate of field expansion (ODI 2006) and
increase taxes on private resource extraction, preferably automatically through indexation of oil contracts (Frankel 2010). Fiscal rules reduce the risk of pro-cyclical spending
and saving. To prevent an appreciation of the currency, the central bank can sterilize the
increase of foreign exchange by carrying out contractionary open market operations.
Establishing a broad tax base and transparent commodity funds help buffer the
negative effects of decreasing resource prices, a subsequent economic slowdown and
shrinking resource rents. Diversification of the economy is another promising tool to
make a country less vulnerable to price fluctuation.
Institutions matter As Weinthal and Luong (2006) point out, these solutions, however, are inherently
limited by their emphasis on the state. Preconditions for these recommendations to

be successfully implemented are functioning institutions: a government that invests
and taxes with foresight, an independent central bank which follows an anti-cyclical
monetary policy. This is highly problematic as most resource-rich countries are
characterized by rather weak institutions. Weinthal and Luong (2006: 39) phrase this
dilemma persuasively they amount to either asking a weakly institutionalized state to
employ capacities that it has not yet developed or relying on non-state actors (who
often have little willingness or ability to do so) to monitor and constrain the states
behaviour. Botswana is a prominent example for successful macroeconomic policies.
As the OECD (2009) has lauded, government revenues, primarily from diamond
exports, were channelled into investments in education, health-care, and infrastructure, while Botswana maintained tight fiscal control, aided by the creation of a set of
rules, the Sustainability Budget Index. But most resource-rich developing countries
are, in fact, not like Botswana. Quite the contrary, they are characterized by very weak
institutions. Likewise, ODI (2006) points to the relevance of the political system and
hindrances, in particular in factional democracies, or in autocracies. Anti-corruption,
institutional strengthening and human capacity-building at the national and provincial and municipal level are the basis for these instruments to work. Stevens and
Dietsche (2007) are highly sceptical about the hopes placed into positive institutional
change. According to the authors, the call for investment in more capacity building is
based on the assumption that well-trained individuals can set off a rational technical
process that alters a currently bad situation which they do not find very likely.
Overall, the bulk of the literature does not answer the question sufficiently how to
establish good institutions in the first place.
3.1.1 Economic and Export Diversification

The seemingly easiest answer to the risks of Dutch disease is a diversification of the
Institutional and state
capacities needed for
domestic economy and exports (Knedlik et. al. 2007; Osakwe 2007; Bonaglia/
Kiichiro 2003; Heuty 2009). Not only would this reduce the countrys vulnerability to adequate diversification
price fluctuation, many economists see greater learning effects, positive spillovers and
technological diffusion in the manufacturing than in the primary sector. While this
strategy looks good on paper, it is anything but easy to achieve. According to
Weinthal and Luong (2006), moving revenues from a booming resource sector to
other non-booming export sectors has shown clear disadvantages. Not only is
diversifying the economy difficult to manage. The result of such a strategy was often
import substitution industrialization and protectionisms with dubious effect on
economic growth. For this strategy to be successful, well-functioning institutions and
a transparent decision-making process are pivotal. Without certain levels of statehood
and institutional capacities, implementation of export diversification becomes an
unmanageable task for developing countries (Osakwe 2007; Bonaglia/ Kiichiro 2003).
Heuty and Aristi (2009: 26) recommend a framework linking development objectives
to fiscal and revenue management instruments. This implies that the country identifies certain objectives or development goals, and aligns annual budgets with these
objectives. This means, in short, that the country invests the resource windfall at
home rather than saving it abroad.
3.1.2 Privatization
Weinthal and Luong (2006) see the solution to bad governance in private ownership. Privatization as an incentive
for governments to strengthen
If ownership over mineral reserves is private, governments will have an incentive to
build strong fiscal and regulatory institutions. As the state has less control over these institutions
resources and revenue streams, it is more likely to set up a broader tax regime and to
invest in other sectors of the economy as well as in human capital. Societal actors, on
the other hand, have a strong interest in monitoring economic policies of the government, demanding robust institutions to secure both their property rights and a stable
revenue stream. Accordingly, the IMF and World Bank have repeatedly recommended
the privatization of state-owned oil and mining industries (van der Ploeg 2007).
While this may help to prevent corruption as well as increase transparency and
accountability, privatization outcomes have been ambivalent. If the process of
privatization is not closely monitored, the outcome could be detrimental to future
growth: A few companies are privileged on the basis of nepotism rather than profitability. Karl (2009) also cautions that the process is highly political, and the question of
who gets what is rarely decided along objective criteria. As Stiglitz (2007) points out,
it is sometimes better to practice patience than to sell oil wealth badly. Thus, he
recommends strengthening institutions before privatization is commenced. Governments shall pursue transparency, ownership and fairness in processes with privatesector parties and actors. Again, preconditions for success are strong institutions,
including strong property rights (van der Ploeg 2007).
3.1.3 Host Country Agreements

Contracts between ODI (2006) considers revenue-smoothing mechanisms through host country agreecorporations and states to ments a possible solution, which means that payments of rents to the government can
steer revenue-flows be smoothed by adjusting investment agreements between the resource owner and
the asset owner, which binds the state and companies and may help avoid arbitrary
movements by governments. ODI singles out two success stories: Botswana, where
the method has been applied in diamond mining with the company De Beers; and
Indonesia, where such contracts were formed with BP on a gas development project.
Thus, revenue-flows from companies to governments were steered at a lower pace
(ODI 2006). Host country agreements, or Production Sharing Contracts (PSC) or
Agreements (PSA) are complex mechanisms that provide clear political advantages, as
some authors point out (Lay Minio-Paluello 2008; Budina/ van Wijnbergen 2008;
Hogan/ Sturzenegger/ Tai 2007). ODI warns however, that such agreements should
be viewed with caution, because they usually reflect the market circumstances that
were valid at the time of contracting. This means that the terms can differ vastly
depending on competition and demand. Revenue-smoothing can also be obtained not
only by contracts between firms and host countries, but also by external revenue management mechanisms, like for instance an agency or a forum. Philippe Le Billon
(2008) recommends the formation of a resource compact that enhances dialogue
between the public, firms and local politicians. Further, an international framework
like an international extractive sector agreement or a revenue agency may help
avoid volatility of resources revenues and stabilize incomes for host countries.
3.1.4 Fiscal Management

Improvement needed for According to Weinthal and Luong (2006) fiscal policy is the key to successful maninformation, monitoring, agement of resource wealth: Resource revenues during boom periods need, in part, be
participation set aside to buffer future downturns. However, as this is often socially and politically
unpopular, institutionalized mechanisms are necessary which ensure accountability
and transparency. Corruption and rent-seeking behaviour can only be avoided when
well-functioning institutions and procedures accompany an autonomous technocracy
in handling resource revenues. Karl (2007: 264) identifies three types of stateness
deficits: information, monitoring and participation. Therefore, she recommends a
fiscal social contract that is based on transparency and changes the incentive
structure for rent-seeking behaviour through monitoring, both nationally and
internationally, in the oil business. The initial step in establishing such a contract is a
broad based agreement between governments and their citizens, companies and
international financial institutions to be more open about the allocation of oil rents so
that their distribution becomes fairer. Mahon (2005), van der Ploeg (2007) and
Brahmbhatt and Canuto (2010) agree with the importance of transparency and
accountability in resource revenues and spending. Dabn and Helis (2010) build on
this argument and call for the establishment of a Public Financial Management
Framework (PFM framework) in resource-rich countries. This includes for example:
(1) a transparent and comprehensive presentation of resource revenue in the budget
emphasizing the role of the non-resource deficit; (2) a sustainable long-term fiscal
strategy with realistic medium and long-term projections; (3) clearly defined budget
classifications to track budget execution; (4) the development of an unified budget
execution process, avoiding rigid and non-transparent earmarking mechanisms; and
(5) enhanced accountability and transparency mechanisms.
The ever-cited success story of Botswana, to turn diamond deposits into development, shows that by a systematic fiscal management of resource wealth, the resource
curse can be avoided. The mixture of shareholding of governments in mining
ventures, long-term mining agreements between foreign investors and the local
government, and saving of revenues which added to Botswanas foreign exchange
reserves have helped sustain stability and growth. Further, the governments external
reserves are managed by the central bank and invested through two funds, one for
long-term assets and one for money market and short-term bonds (IMF 2007).
Strmer and Buchholz (2009) have expounded that revenues from the extractive
sector could potentially cover the costs to reach the United Nations Millennium
Development Goals (MDGs) until 2015 in four selected case studies. For three different price scenarios, the authors elaborate the possible resource income for Ghana,
Mozambique, Namibia and Zambia. Particularly Zambia shows significant potential
to cover its MDG costs with revenues gained from the extraction of its copper and
cobalt resources. The country has reformed its fiscal system in 2008, aiming at
increased government revenues from the mining sector. The mineral royalty was
increased from 0.6 to 3 percent, the corporate income tax was raised from 25 to 30
percent, and the government introduced a variable profit tax for profit ratios above,
and a graduated windfall tax for profit ratios below eight percent. Cautioning against
hopes for one-size-fits-all approaches, the authors stress that the amount of government revenues from the extractive sector depends on the respective commodities and
their price developments, the availability of necessary infrastructure, like means for
transport or electricity, and the investment conditions in each country.
Botswana: Systematic fiscal

management proved effective
3.1.5 Natural Resource Funds

Funds for stabilizing or saving Much attention has been given to the Natural Resource Funds (NRFs) as a tool to
facilitate good revenue management through separating government expenditure

from revenue. While a commodity fund in itself does not do the trick, a professionally
and transparently run funds my help invest for future welfare, Frankel (2010) argues.
These funds come in two forms (Asfaha 2007): (1) stabilization funds, which aim at
smoothing government expenditure by accumulating savings during booms to serve
as a buffer against future price drops, and (2) saving funds (or future generation
funds), which aim at accumulating savings for the future.
NRFs have not always helped There are some countries which have successfully employed such funds such as
increase transparency Botswana, Norway and Alaska while others have failed to do so, including Oman and
Venezuela. There are many examples for failures: According to the German Federal
Ministry for Economic Cooperation and Development (2006) and the KfW (2004),
the Mineral Fund in Ghana and the Fund in Equatorial Guinea have shown deficits
due to lack of budget discipline, too little payments and misuse by persons that are
authorised to access. As empirical evidence shows, NRFs have rarely helped to
overcome corruption or have produced transparency. Humphreys and Sandbu (2007)
attribute Chads dismal fiscal management to the governments preference to change
the rules of its fund rather than to adhere to them. Failure is particularly likely in
countries with strong executives that keep authority over the resources.
Effective funds need clear Asfaha (2007) finds in his cross-country analysis on the efficacy of NRFs for fiscal
standards and rules stability and intergenerational equity that the main reason for failure lies in non-
adherence to NRF rules (including frequent changes to the rules), such as clear fiscal
accounting standards. The determinant for success, on the other hand, is the political-economic environment in which these funds operate. And there lies the crux
again: The government needs to be willing to stick to its own rules. As Weinthal and
Luong (2006) conclude, success is determined by institutions that provide oversight,
transparency, and accountability. The relevance of transparency of resource funds is
underscored by Auty (2007), Bleischwitz and Bringezu (2007) as well as by Franke,
Hampel-Milagrosa and Schure (2007).
Legislative restrictions to According to Mogae (2008), Botswanas Diamond Area Community Development
avoid overspending or Fund (DACDF) has worked comparatively well because of civil society awareness and
instability of rules oversight institutions like the parliament, the Auditor General and an independent
press. According to Gberle, Ltourneau and Smillie (2006), the fund has provided
revenues for chiefdoms and the improvement of infrastructure, education, health and
vocation skills training centres (Maconachie/ Binns 2007; Tempel 2005). Without
safeguards, however, the danger of misuse of resource rents is high, as Jackson (2007)
emphasises. An example of this is the Diamond Area Community Development Fund
(DACDF) in Sierra Leone, which has been established to give back some of the
diamond revenues to communities and to motivate local commitment to legal

operations. More than 500,000 US-Dollars were returned to communities in 2003,
before the fund was suspended, because of irregularities (DDI 2008). Asfaha (2007)
therefore calls for strong legislative restrictions on governments discouraging overspending and the altering of fund rules.
Brahmbhatt and Canuto (2010a, 2010 b) caution that an NRF in itself will not protect
resource revenue from political pressure and potential waste and corruption. The
authors also highlight the need for strengthened public investment management, cost
benefit analyses, monitoring and evaluation, and budget processes and institutions.
Karl (2007: 272), however, argues that there is little use of such funds in countries like
Kazakhstan, the DR Congo, or Equatorial Guinea, where governments do not
provide even the basic information about their revenues from gas and oil. While the
funds may look good on paper, they are most often set up under the direct control of
the executive. Karl considers them therefore a type of parallel budget without
control. She warns that these funds might therefore add to the fiscal chaos in many
resource-rich developing countries while becoming a second honey pot. Poor
transparency and the continued control of governments over resource revenues limit
the positive effects of resource funds, as examples of Chad and Azerbaijan have
shown, where this occurred and where funds were not supported by strong institutions. Ironically, one can say that funds are most functional, where they are practically
not needed, which is an environment of sound economic policies with limited
dependence on resource revenues by the government (IUCN/ IISD 2006).
Investment management,
cost-benefit calculations,
monitoring and evaluation is
impossible in intransparent,
corrupt regimes
Use of funds for special causes

Humphreys and Sandhu (2007) therefore recommend that spending should go
through the regular budget, not the resource fund, so that the fund does not become may improve utility
the politicians private cashbox. Frankel proposes leaving resource revenues with the
central bank (under the condition the central bank is politically independent) as a
preferable option to establishing a resource fund. Furthermore, earmarking funds for
a specific cause, like education or health, is a feasible option to ensure its proper use
(Frankel 2010). Bell and Faria (2005, 2007) disagree: Only in principle, oil or mineral
revenues can be handled like any tax or other receipt, placed in treasury accounts, and
allocated in accordance with normal budgetary process. In practice, however, the
magnitude of the receipts and the difficulties of control in resource-rich developing
countries suggest the need for special legislation. Gelb and Grasmann (2010) point to
the public as important control body, calling for approaches that increase public
understanding of the need for prudent spending in booms, and for comprehensive
consideration of a range of options for using rents.
3.1.6 Direct Distribution

A crucial question is how to allocate resource revenues, for example whether to return
revenues to citizens (via tax cuts, transfers or the provision of public goods) or to
retain them in public hands. According to Brahmbhatt and Canuto (2010), a common
benchmark, the permanent income rule, suggests saving all resource revenues after
funding a certain permanently sustainable increase in consumption. This is one
important reason for establishing NRFs. However, this rule might not apply to
developing countries, which do not have the ability to freely borrow and lend at the
world rate of interest. If the government can supply scarce public goods that raise
returns on private investment, the two authors argue, spending more on high-return
domestic public investments might be a preferable strategy to increasing saving.
Per capita distribution
and taxing to enhance
statehood and proper use of
resource revenues
Sala-i-Martin and Subramanian (2003), Heuty (2007) and van der Ploeg (2007)
recommend passing incomes from resource extraction straight to the people of a
country. A visible return to the people, for example in the form of public infrastructure and education, not only accelerates growth and development but also ensures
benefits for future generations. In addition, it can reduce the risks of conflicts.
Frankel (2010), Sala-i-Martin and Subramanian (2003) and Birdsall and Subramanian
(2004) have proposed the distribution of resource earnings on a per capita basis, modelled according to the Alaskan example, where half of the investment earnings on oil
are distributed on a per capita basis. While Sala-i-Martin and Subramanian focused on
Nigeria in their analysis, Birdsall and Subramanian recommended this strategy for
Iraq. Using the example of Ghana, Moss and Young (2009) argue that direct cash
distribution of oil revenues to citizens is a potentially powerful approach to protect
and accelerate Ghanas political and economic gains, and a way to strengthen the
countrys social contract. Handing out oil revenues directly to Ghanaians will not
only provide them with an immediate highly visible welfare benefit. It will, according
to the authors, motivate active participation in monitoring the revenue flow while the
state will be forced to find ways of increasing taxation and the provision of public
services. The same is recommended for Nigeria by Shaxson (2009: 45): The only
other solution that theoretically could address these two features [of the resource
curse, meaning the disempowerment of the society and patronage] directly is to
distribute revenues directly to citizens of countries concerned, then tax them back.
He further calls for more research on this tool to prevent the resource curse.
Narrow income gap between Ross (2007) takes a slightly more differentiated approach. The author argues in favour
resource-rich regions of the adoption of policies that narrow the income gap between the extractive region
and others and the rest of the country, thus reducing the gap between real and expected incomes.
This approach includes revenue transparency, good corporate citizenship, restricted

migration to the extractive region and fostering the role of NGOs and reducing
exploitation by security forces.
An important question is how resource revenues should be returned to the people. As How much to tax?
Gelb and Grasmann (2010) have argued, there are both pros and cons for lowering
taxes: A low-tax environment improves the business climate and encourages investment. On the other hand, taxation is an essential component of the process of
state-building, both for developing state capabilities and for encouraging demand for
public accountability. Ross (2007) also points at the drawbacks of such an approach,
warning that weak institutions might lead to failure. Thus, he apprehends rent-seeking behaviour and the development of a rentier mentality among the people. Weinthal
and Luong (2006) likewise warn against direct distribution of revenues. If windfalls
are transferred to individuals, incentives for private investment are diminished.
According to the authors, even in the often cited success story Alaska, distribution of
a part of the oil revenues has had dubious results, leading to more consumption than
investment by private actors.
Ultimately, the recurring theme here again is: Institutions matter. Improved institutions, a strong legal system, accountability and transparency of resource revenues,
ideally achieved through private domestic ownership, are broadly accepted preconditions among scholars for successful direct distribution (Weinthal/ Luong 2006; van
der Ploeg 2007). Havro and Santiso (2008) even recommend an international institution for technical training and which can help intensify research and innovation, for
instance in the minerals sector, in the form of a World Copper Institute or some
equivalent body.
3.2 Moving from Economics to Politics: Involving External Monitors

What can be learned from the literature so far? The authors agree that institutional
quality and state capacity are pivotal for successful resource management. But as
many resource rich developing countries lack these characteristics, many observers
recommend the inclusion of external actors for monitoring purposes. The ODI
(2006) has tested different initiatives, including the Extractive Industries Transparency Initiative (EITI), Publish What You Pay and the IMF Code on Good Practices in
Revenue Transparency. ODI focused on various aspects of resource management,
including: (1) the investment agreements, (2) transparency of payments from companies to governments, (3) the distribution of revenues, (4) participation by civil society
in deciding on the allocation process, policies and priorities, and (5) monitoring,
evaluation and oversight systems. In a comparison of the evaluated initiatives, the
IMF Code on Good Practices in Revenue Transparency was ranked first, followed by
Sector Wide Support from Donors (SWAPs), the Aarhus Convention and Publish
What you Pay. What made the IMF Code of Good Practices most successful was,
according to ODI, the clarity of roles and responsibilities, public availability of
information, open budget preparation execution and reporting, and assurances of
integrity. But some find this to be exactly problem with the IMF codes because they
impose direct and specific pressure on a country and can thus lead to principal
objection, failing to be even considered or implemented (Shaxson 2009).
No matter what: Strong

institutions are needed
Multi-stakeholder initiatives In the following section, we summarize the literatures general finding on selected
under scrutiny instruments according to their goals: (1) transparency, (2) public awareness, and (3)
corporate responsibility. These instruments not only aim at creating the right environment for economic growth, but intend to reduce the likeliness of violent conflict.
3.2.1 Transparency and Public Awareness

Key principles: Scholars generally agree on the importance of transparency, democratic accountability
Transparency, accountability and public inclusion in monitoring processes as basis for resource management which
and monitoring reduces poverty and the likeliness of violent conflict (Franke et al. 2002; Dunning
2005; Collier et al. 2003; Guesnet et. al. 2009; Liebenthal et al. 2005; World Bank
Extractive Industries Review, 2003; Heuty 2009; Karl 2007; Bell/ Faria 2005).
Revenue processes need to be controlled and monitored; all taxes, fees, royalties and
other payments should be disclosed. Capacity-building and partnering with NGOs is
recommended. Transparency monitoring of revenue streams not only reduces the
incentives for mismanagement and corruption. It can also entail a learning process
for states and citizens, thus helping to sustain a healthy business environment over
the whole oil extraction processes and relationships (Johnston 2007; Darby 2008).
Public information services Transparency can, for instance, be ensured by a public information office, informamay increase transparency tion through the internet, and responsibility by the respective players, the government
and the corporations and private parties, to disclose their actions in reports and
surveys. External checks that insure norm-compliant use of money and disclosure of
payments may be another good approach to protect natural resource rents from
misuse. Frankel (2010) highlights the example of Sao Tom and Principe, which has
adopted legal mechanisms rendering contracts void if information relating to oil
revenues is not made public.
Limitations of the While transparency initiatives have received much attention in recent years, not all
transparency concept observers laud them for their positive effects on governance. Others (Kolstad/ Wiig
2009: 529) warn against placing too much hope in transparency mechanisms. To
install effective transparency mechanisms, it is imperative to understand the ways in
which transparency can affect corruption, as well as the limitations to an approach
that centres on this concept. According to the authors, research on the relationship
between transparency and corruption is, despite the large number of studies, still
rather insufficient. Furthermore, the empirical evidence does not match the popularity of the transparency concept. By adding transparency variables to growth regressions by Sachs and Warner (1997) and Mehlum et al. (2006), Kolstad and Wigg (2009:
529) tested quantitatively, if transparency is a significant factor for reversal of the
resource curse. The authors conclude that if transparency played a role for growth in
resource-rich countries, then this may only hold true because it helps increase access
to information that may reduce rent-seeking and patronage. Furthermore, they find
that transparency has an effect on corruption only under certain circumstances:
Agents whose access to information is increased, must also have an ability to process
the information, and the ability and incentives to act on that information. Kolstad/
Sreide (2009) are also sceptical about transparency initiatives. While they see their
value in the opportunity for the public to identify potential governance failure,
transparency is not sufficient for reducing corruption. They argue that for information to have an impact on the conduct of government officials, the officials must face
some sort of sanction where misconduct is detected. Agreeing with Kolstad and Wiig,
the authors find that voluntary initiatives will not suffice in addressing corruption and
mismanagement. This is underscored by Firger (2010), who examined the effects of
the US Energy Security Through Transparency Act (ESTTA) to trace corruption and
thus lead to fairer and development-oriented foreign direct investment, especially in
African countries. Firger concludes that transparency is not a tool to prevent corruption, mostly because in a multi-stakeholder environment like that of extractive
industries direct investments, the actors that suffer from corruption (the citizens of
the host country) do not have a voice on firms activities. Conversely, shareholders
that invest in a given country may exert influence on local firms, but do not have a
vital interest in local resource policies. Further, these investors will not be able to
change the behaviour of corrupted foreign leaders. Firger recommends that transparency acts like the ESTTA should create an independent regime for disclosure and
reporting of natural resource policies, to develop strategies for better governance, that
are detached from national local policies and their decision-makers. Another strategy
to achieve better resource governance would be the linkage of financial or political
support with applied compliance of transparency initiatives.
Extractive Industries
One of the most prominent transparency initiatives is the Extractive Industries
Transparency Initiative
Transparency Initiative (EITI). The initiative was launched in 2002 and aims at
enhancing transparency and accountability of the extractive sector in resourceendowed countries. Especially countries with high reserves of oil, gas and mining
resources are addressed with the initiative, which aims at the publication of payments
by companies and the disclosure of revenues by governments. An evaluation of the
money transfers is performed, monitored by a multi-stakeholder group. As of today,
five countries have fully validated the EITI implementation and are accepted as EITI
compliant countries: Azerbaijan, Ghana, Liberia, Mongolia and Timor-Leste, while
27 countries11 have a candidate status. Further, 50 of the worlds largest oil, gas and
mining companies and more that 300 non-governmental organizations (NGOs)
support and participate in the EITI process, and international organizations like the
World Bank, the IMF and several regional development banks provide support for
the initiative. According to ODI (2006), the EITI strategy of Azerbaijan proved
promising, where the commission overseeing the implementation of the initiative is a
local NGO transparency coalitions, helping to guide stakeholder groups. In Sao Tom
and Principe, a national Forum has been established to inform citizens about the
impact of the oil industry and to seek advice on revenue spending. Their efforts did
11 Afghanistan, Madagascar, Albania, Mali, Burkina Faso, Mauritania, Cameroon, Central African Republic, Mozambique,
Chad, Niger, Cte dIvoire, Nigeria, the DR Congo, Norway, Gabon, Peru, the DR Congo, Sierra Leone, Iraq, Tanzania,
Togo, Kazakhstan ,Yemen, Kyrgyz Republic and Zambia. Equatorial Guinea and Sao Tom and Principe were candidate
countries until April 2010 but have then been de-listed by the EITI Board. Guinea was suspended later in 2010.
not suffice, however, to extend their implementation period. In Timor-Leste, consultations were held with local civil society organizations, communities and universities
to help develop a revenue management. According to EITI (2009), some of the
efforts of the transparency initiatives have shown positive results. In Ghana for
instance, EITI reports have traced the overall mineral royalty payments that were
collected by the government and then been re-distributed to local authorities. A
report included spending actions by the local authorities in the producing districts. In
Nigeria, physical audits are added to financial audits for reporting and record of oil
and gas revenues while in Liberia, revenues from forestry were included in the
reconciliation exercise of EITI.
Implementing EITI However, Shaxson (2009) warns against the assumption that membership in EITI
is not enough signifies reforms automatically. He refers to EITI in Nigeria (NEITI), where
many deficits have turned up since the country signed the initiative. Shaxson
underlines that often, reforms, which are initiated in response to EITI principles,
are not maintained. Shaxson recommends that EITI discloses the exact shares of
each barrel of oil, which are turned to the government as budget revenue. However,
he still finds reason in efforts of EITI in Nigeria, because of its diffuse, undirected
source of influence or pressure (44; highlights in the original text). Experiences
from other countries like Angola have shown, that direct pressure can be counterproductive and rejected.
Generally speaking: EITI is a Generally speaking, the literature draws a positive picture of EITI as an initiative to
good start for prudent politics promote prudent resource politics. After all, transparency is believed to be crucial for
resource politics that aim at development, poverty-reduction and conflict-prevention.

A quantitative investigation by Franke, Hampel-Milagrosa and Schure (2007) shows
that there is indeed a positive correlation between resource regime compliance and
resource governance and sustained peace. They find that EITI and other international resource regimes have had a positive effect on conflict prevention. The authors
thus vouch for regulated resource trade, but under special consideration of the
predispositions given in every individual context.
But implementation Context matters, as Matthias Basedau concludes in 2005 with respect to reasons
successes vary and solutions for the resource curse. This is underscored by numerous authors that
observed difficulties in the implementation of transparency initiatives and other

projects. Maconachie (2009) found that despite the positive step of signing EITI in
2007, Sierra Leone still struggles with the implementation of its principles. For
instance, the initial implementation work plan failed its EITI validation and the new
government had to re-submit it. Participation by the broad public is complicated,
because in Sierra Leone, the civil society is still highly hierarchical and uneven.
Further, corruption and insurgent networks are still commonplace phenomena in the
post-conflict country, posing challenges to implementation of the EITI principles.
Kolstad and Wiig (2009) point at a number of challenges the EITI initiative has to
EITI covers only a part
face. First, EITI is an initiative that focuses on revenues from extractive industries in of the public sector
resource-rich countries, i.e. only a small section of the public sector is covered, while
it does not address transparency in the use of public resource, i.e. the expenditure
side. Robinson et al. (2006) also find that accountability in the use of public resources
is the key to avoiding the resource curse. Second, EITI membership is voluntary for
states and companies. Third they find that transparency is, in and of itself, insufficient
in improving government behaviour. As some resource-rich countries like Chad,
Gabon, Cameroon and Equatorial Guinea, have dictatorial tendencies and high levels
of corruption, the applicability of EITI is left in doubt (Custers/ Matthysen 2009;
Hilson/ Maconachie 2009). Furthermore, even under established transparency
regimes, multinational firms have cooperated with corrupt officials in countries with
oil wealth as was the case in Equatorial Guinea and in Chad (Frynas 2004; Hilson/
Maconachie 2009). The limitations of NEITI for the Niger Delta, which can be
traced back to the problems of petro-states, are weak institutionalization; grievances
on the production-side and environmental destruction make developing countries
with extractive industries resources particularly vulnerable to instabilities (Mller
2010; Igwe 2010). Shaxson (2007) shares this scepticism of the functionality if EITI
in corrupt states. In Nigeria, for instance, oil revenues have been stolen or squandered
by corrupt officials. Recommendations to solve this dilemma include a reporting
system from country to country of multinational corporations as an option to achieve
higher efficiency in meeting individual challenges. Transparency in production
contracts is not included in NEITI and should therefore be considered an option for
local communities to gain a say in the operative part of extraction. Besides, transparency should be only one pillar next to corporate responsibility of investors, setting up
mandatory rules for companies in developing countries (Mller 2010).
PWYP for advocacy and
The initiative Publish What you Pay (PWYP) was launched shortly before the EITI
in 2002 and consists of a coalition of 250 international and national NGOs in over 70 capacity building
countries. Key principles of PWYP fall into two categories: Advocacy and capacity
building (International Alert 2009). The mechanisms are a mixture of informal and
formal channels to transport information to the public, make it understandable and
accessible; establishment and maintenance of advocacy positions, cooperation with
the media and engaging public officials to push in the direction of the agenda of the
civil society. Working with the media is considered one of the key success factors for
transparency initiatives (ODI 2006).
Differences and similarities
While PWYP is a social movement, formed and led by a group of NGOs, EITI is a
country-driven, multi-stakeholder initiative that links governments, multinational and between EITI and PWYP
state-owned extractive companies and business and industry associations. Further,
international financial institutions, and civil society groups are included in the EITI.
Unlike the PWYP, EITI is based on a voluntary, country-by-country approach, in
which host governments declare their adherence to a set of principles and criteria
aligned with the financial disclosure standards promoted by the PWYP campaign
(Liberia went further and signed the EITI principles into law). In fact, the EITI was
originally launched in response to pressure from the PWYP campaign. Further, the
focus of EITI is on host governments in producing countries, while the addressees of
PWYP are principally extractive companies and home governments in non-producing
countries (Darby 2008). More so, PWYP has published a validation guide for EITI in
2010, with ambiguous results on the impact of the initiative, highlighting that it is a long
way from validation of EITI to full compliance with its principles. As of today, this has
been achieved only by Azerbaijan, Ghana, Liberia, Mongolia and Timor-Leste.
Long-term effects Long-term effects of EITI and of PWYP are still not foreseeable, as both initiatives
uncertain today have only existed for less than a century now. As the literature shows, they combine
approved mechanisms and have contributed to better policies in member states, but
political and institutional stability have curtailed their contribution to sustainable and
prudent resource use.
3.2.2 Certification Schemes

The Kimberley Process An example of a sector initiative for single goods is the Kimberley Process Certifica-
tion Scheme (KPCS), an import-export certification system to prohibit trade with

so-called blood diamonds. The Kimberley Process is one of the few legally binding
mechanisms for the trade and treatment of conflict resources. To date, 75 countries
are part of the system that was created in 2003 (Global Witness 2010). By their
membership, theses states oblige to certify the origin of diamonds and to maintain
that they do not originate from conflict zones. The scheme allows the diamond
industry to monitor itself. Critics point out that monitoring mechanisms fail to
disclose contraband goods and to trace back origins of some of the gemstones,
especially in West Africa. In addition, monitoring and enforcement did not prove very
successful in Angola, Sierra Leona and Liberia (Global Witness 2010; de Koning
2008; Heinke 2008; Paes 2005)
KPCS helped increase Besides, the KPCS fails to include social standards to provide transparency on, for
transparency but failed to instance, inhumane extraction processes to the certification scheme. This means that
provide a universal remedy certified conflict-free diamonds are not necessarily diamonds that have been extracted
under violence-free conditions and western labour standards (Maconachie/ Binns

2007). The NGO Global Witness (2010) recommends a stronger commitment to
human rights of the KPCS, as well as the implementation of an independent technical
capacity and improved decision-making procedures, as the current consensus decision-making process does not allow for strong decisions to ensure compliance.
Thus, the outcomes of such regimes are not generally satisfying. In Sierra Leone, for
example, industrial mining seems to be prioritized over artisan mining by the government. Artisan diamond miners are still being exploited by local elites, licence holders
and investors and other supporters of their mining activities, leading to a high level of
corruption and mismanagement. Violence is thus still a threat to mining sites in Sierra
Leone, because legalization of industrial mining has not helped improve the local
level mining conditions (de Koning 2008). The empirical findings are disillusioning:
Sierra Leone, Liberia, Madagascar and the DR Congo all have easily accessible
mineral resources, like gemstones and diamonds. Even though the KCPS has helped
institutionalize some transparency of diamonds trade in Sierra Leone, smuggling still
is a persistent problem that may put the utility of the initiative into perspective. In
2002, up to 90 percent of the diamond production has been exported illegally, which
caused a loss of 350-400 Million US-Dollars for development funds (Management
Systems International 2004). The same applies for the Cte dIvoire, where illegal
exploitation and trading with diamonds has never ceased to exist (Guesnet et al.
2009). Scholars recommend an internal monitoring system for diamonds so that the
diamond embargo can be lifted from the Cte dIvoire and that the Kimberley
Process principles can be applied. Further, they claim more transparency and
accountability in the oil and gas sector and find that direct inclusion of the population
would help redistribute revenues from natural resources more fairly in the Western
African country.
Labelling schemes
The US-based Enough Project promotes a labelling initiative to prevent resource
conflicts in Africa. Enough aims at rising awareness for the conflicts in the DR
Congo, amongst other African states, and recommends an integrated approach to end
resource wars and the distribution of conflict minerals. Hall (2010), Prendergast
(2009), and the Enough Project Team with the Grassroots Reconciliation Group
(2009) emphasize that current efforts have failed because mere sanctioning of
individuals or capacity-building for institutions do not suffice to meet the challenges
of the complex conflict constellation. Coherence and diplomatic momentum are both
lacking, thus these strategies prove unable to make an actual change.
Enough Project may enhance
The Enough Project proposes a roadmap, consisting of four parts, (1) a transparent
tracking of product origins
supply chain, (2) secure mining sites, (3) improved governance of mining and trade,
and (4) improved livelihood options for miners. This will only be achieved by a
partnership of local and international state and non-state actors to help end conflicts
in central Africa. Transparency to trace back the supply chain, end user responsibility,
the establishment of a Transitional Mining Authority in the DR Congo, government
capacity-building and regional export harmonization build the cornerstones of an
effective and integrated strategy. The German governments project on Certified
Trading Chain is another such effort to coordinate international cooperation and
support legally traded minerals (Garrett 2008; Franken 2009).
Support for certification Prendergast and Lezhnev from the Enough Project (2009) outline three factors which
schemes needed would increase legal production and trade of minerals from the DR Congo. These are
traceability, which implies that companies must determine the sources of their
minerals, further audit, meaning that companies shall conduct detailed examinations
of their mineral supply chains to ensure legal taxing and payments to the government
of the DR Congo. These are to be supervised by credible third parties. Further,
certification is recommended, which would enable the consumer to purchase conflictfree electronics. According to the Kimberley Process, such a certification scheme
should be assisted financially and technically by donor governments and the industry,
the authors propose.
The KPCS as an example However, several observers question the applicability of the Kimberley Process to
for other resources? other natural resources (Basedau 2005; Bge et. al 2006; Brzoska/ Paes 2007; Paes
2005). The authors believe that a similar regime is not suitable for oil, as diamonds do
not have the same strategic meaning of oil, are used by individuals, are traded by an
almost single company and are extracted in countries, where militia and rebel groups
instead of governments profiteer from resource revenues. Haufler (2010) accounts the
success of the KPCS to high industry concentration, limited sources of the product,
and extreme sensitivity to reputational effects. He finds that the most significant
factor that distinguishes the KPCS from other regimes is the public system of
monitoring and enforcement.
In addition, other regimes for labelling or certifying resources, like the Forest
Stewardship Council (FSC), do not specifically refer to the conflict dimension of
production and trade. They work as labelling systems for generally responsible, that
is socioeconomic, ecological and sustainable, production and trade. The FSC has
been created at the Rio Conference in 1993 and identifies ten principles and 56
indicators for good forest management, logging and trade of timber. Timber
producers or landowners can apply for certification of their materials (Crossin/
Hayman/ Taylor 2003).
National control does Many of the measures that contain a multi-stakeholder approach to resource governnot suffice yet ance tend to lack local ownership and capacity-building of the addressees, which
accounts for their limited success. Feldt (2009) concludes that initiatives like EITI or
certification schemes like the Kimberley Process would be more functional, if linked
to national control mechanisms and if they allowed further multi-stakeholder participation in production countries (similarly: USAID 2008; USAID 2005; Diamonds for
Development 2006). Le Billon (2003) believes the Kimberley Process to be weak in
its effectiveness as it is neither applied globally nor effectively monitored. He further
finds that global acceptance and supervision will be unlikely. Likewise, he is pessimistic about other certification schemes, for instance for timber. He considers their
effectiveness to be weak when they apply only to a minor share of timber trade, and if
not globally extended, will not have an impact as an instrument to address resource
abundance and its dangers.
A systematic effort to evaluate standards and regimes for certifying resources has
been commenced by Stetter and Zangl (forthcoming). They have started a project to
examine different global standards and certification schemes with regard to their (1)
institutional set-up, (2) characteristics underlying of the standard or system, (3)
characteristics relevant for the development of the standard or system, and (4)
institutional characteristics that provide information on the respective conformity
assessments. First results are expected by spring 2011.
3.2.3 Industrial and Corporate Responsibility

Conventions or codes of conduct that not only address resource extraction but appeal ILO, Equator, OECD, VPs
to general awareness and responsibility, containing voluntary agreements for security
and human rights, include for example the ILO-Conventions on labour standards, the
Equator Principles as international guidelines for banking corporations that apply
project funding, and the OECD Codes of Conduct for Multinational Corporations.
The Voluntary Principles on Security and Human Rights (VPs) were developed by a
group of NGOs in 2000. Together with several extractive industry companies and the
U.S. and UK governments, they founded codes of conduct that established a risk
assessment that includes conflict analyses and appraisals of security risks by participating companies.
World Bank standards
The Environmental and Social Standards that were developed by the World Banks
International Finance Corporation were launched in 2006. They require risk assessments and analyses of new and major projects. Global and multi-sectored norms are
also included in the principles of the Global Compact of the UN. The voluntary
regime gathers 5,000 participants, among them more than 3,000 companies, that have
obliged themselves to ten principles on factors like the environment, human rights,
labour standards and anti-corruption (Wilson Center 2008). Van der Ploeg (2007)
recommends mandatory compliance with these principles. A possibility for the local
and global civil society to supervise management of revenues by the government and
firms may be a step towards responsible use of resource revenues. Timing and
composition of expenditures are considered crucial as well, when the revenues are
used either for accumulation of foreign assets, for domestic investment or for domestic consumption.
Management of resources,
Not only can supervision, executed by the international community lead to better
revenues and the environment
resource governance, Franke et al. (2007) recommend special programmes that
promote resource management, management of revenues and environmental
protection additionally. Further, targeted development assistance, which aims at
promoting good governance, transparency, rule of law or resource conservation will
likely help improve certain sectors of resource governance. Directing development

assistance on regulated exploitation of natural resources, for instance, could be such
a target for foreign aid.
4. Conclusion
Impact of instruments de- The above-mentioned recommendations and mechanisms have shown that there are
pends on context numerous propositions to finding a conflict-free and developmental approach to
governance of resources. As could be seen in the various approaches and examples,

our first finding refers to the outcomes of the mechanisms. These vary widely in
accordance with the prerequisites in the given country, governance indicators,
statehood and quality of institutions. Thus, whatever strategy is politically and
economically feasible in a country depends on the prerequisites and institutional and
political framework. Our second finding is that a one-size-fits-all approach has been
disqualified by think tank literature and scholars alike, as any mechanism has to be
adapted to the specifics of every state and political and institutional system.
Scarce resources management: Governance of scarce resources has mostly been addressed with regard to water, land
Water, land and forests and forest resources. Conflicts over these resources can be avoided by feasible and
communal management of the distribution of the resource.

Governance of conflict resour- The numerous concepts for governance of abundant resources has proven to be more
ces: A multi-facetted task controversial, as resources have played a role for financing of insurgent groups and
sustained corrupt regimes, supporting rent-seeking behaviour and patronage, while

often inhibiting economic development and poverty-reduction. As legal distribution
and sustainable use of resource revenues have principally long-term effects, in
contrast to short-term profiteering, it is not easy to find functional incentives for
establishing strong institutions, responsible fiscal policy as well as benefit sharing.
From the landscape of academic and think tank literature, the only consensual
conclusion to be drawn will be: Only a mixture of the above-mentioned mechanisms,
under consideration of good governance indicators, institutional and political capacity
and local ownership, as well as voice by civil society will lead to success in countries
with resource wealth, when adapted to the individual context.
The Liberia Extractive Industries Transparency Initiative (LEITI) was the first one in Africa to achieve compliant status with EITI by reconciling the revenue
streams between mining companies and Liberian government authorities and disseminating the information to the public (Picture: GIZ, Lutz Neumann).
108
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Africa Department

Curse or Blessing Development or Misery

A. Introduction and Summary of Findings

B. Natural Resources and Economic Growth

C. Natural Resources and Conflict

2.1 Population and Environmental Degradation as Sources of Scarcity

D. Natural Resource Governance Mechanisms and Policy Recommendations 83

2.1 Community-Based Natural Resource Management, Benefit-Sharing and PPPs

B. Natural Resources and Economic Growth

08 Introduction and Summary of Findings

B. Natural Resources and Economic Growth:

Introduction and Summary of Findings 09

Presumable resource wealth can incentivize countries to concentrate on the primary

C. Natural Resources and Conflict:

Natural Resources and Economic Growth 11

1.1 Resource Scarcity and Economic Growth

12 Introduction and Summary of Findings

possible consequence being overexploitation of resources. Recent decades have seen

1.2 Resource Abundance and Economic Growth

inequality and widespread impoverishment, particularly in rural areas (Ross 2004;

Natural Resources and Economic Growth 13

14 Introduction and Summary of Findings

tive regression analyses find a statistically significant negative relationship between

Natural Resources and Economic Growth 15

As a consequence, these findings are anything but universally accepted. Many

16 Resource Abundance and Economic Growth

Relationship between Resources and Growth: Positive/ Inconclusive Results

Analysis of various channels

Lederman/ Malony (2008)

Relationship between Resources and Growth: Negative

Hausmann/ Rigobon (2002)

Sachs/ Warner (1995, 1999)

Foreign Direct Investment

Political (Economy) Channels

van der Ploeg (2007, 2009)

Pro-cyclical fiscal policy

Manzano/ Rigobon (2001)

Debt accumulation, saving and investment

Gylfason/ Zoega (2001)

(Un-)productive investment (Human capital/education

Stijns (2002, 2003)

Leadership and accountability

IImi/ Ojima (2005)

Leite/ Weidmann (1999)

Resource Abundance and Economic Growth 17

2. Resource Abundance and Economic Growth

2.1 Economic Approaches: Dutch Disease

18 Resource Abundance and Economic Growth

political decisions, which in turn are considerably affected by fluctuations in the

Resource Abundance and Economic Growth 19

In other words, dependence on natural resources increases a countrys vulnerability to

20 Resource Abundance and Economic Growth

2.1.3 Foreign Direct Investment

Resource Abundance and Economic Growth 21

2.2 Political Economy Approaches: Institutions and Policy-Making

22 Resource Abundance and Economic Growth

2.2.1 Pro-Cyclicality of Fiscal Policy and Government Debt

hang in resource-rich countries. They differentiate between resource-rich and

Resource Abundance and Economic Growth 23

Strong resource sector =

Recent cases show

24 Natural Resources and Economic Growth

Natural Resources and Economic Growth 25