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sharing in governance of extractive industries

Is there evidence for a subnational resource curse?

My colleagues, Jim Cust and Claudia Viale, have recently written a paper evaluating the evidence on how the positive and negative effects of extraction impact the subnational economy, and whether government policy can lead to positive development impacts while balancing the challenge of costs borne locally. 

There is limited evidence to show a net negative economic impact at the subnational level. However, most studies reviewed for the paper engage in a partial analysis, focusing on one or several channels of effect. Here, the evidence points to both positive and negative effects of extraction borne at different levels and by different groups. For instance, profits and taxes often accrue outside resource-rich regions, whereas many of the negative effects, such as the project environmental footprint, are spatially concentrated.

There are, therefore, important questions about the ability of governments to mitigate harm while maximizing development benefits from extraction, and furthermore how government can manage distributional consequences. Studies point to a potential danger of large transfers to local government, including increasing public spending, creating local price inflation and crowding out traded sectors from resource-rich regions. Taken together, there appears risk of a potential “Peruvian disease”—a term the authors coin for the effects of a booming public sector on the local economy, as a corollary to the macroeconomic “Dutch disease” arising from the booming resource sector.

This also implies there is need to conduct more research into link between resource revenue sharing and local level impact, and channels of impact of company direct linkages. Other areas identified by authors that need additional research include understanding the optimum balance between fiscal and non-fiscal benefits for a country and channels of impact of such benefits, as well as channels of impact of different transparency and citizen participation mechanisms on different accountability outcomes such as better management of revenues and better service delivery.

You can access the paper on the NRGI website

Comments and questions are welcome!

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