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sharing in governance of extractive industries

The political economy of natural resources in Latin America: two panels on resource rents, politics and development

Governments, extractive companies and communities in regions that extract non-renewable resources in Latin America have endured the effects of the end of the last commodity-boom since mid-2014. Some governments and communities have taken seriously the challenge of finding alternative sources of production and income, as extractive companies reduced or suspended their investments and the resource revenues declined significantly. Others are still hopeful of the return of higher prices, specially with the recovery of international prices of oil.

While the interplay of politics and economics will continue forging the path followed by resource-rich Latin American countries, academics are starting to look back to ask what legacy was left by the last super-cycle of commodities in the region? Did the governments and extractive companies deliver their promises about the benefits that communities would enjoy after the windfall of natural resource revenues? If not, was the last commodity boom just another chapter of the so-called resource curse

To answer these and other pertinent queries, two panels at LASA's 2017 Congress will discuss the political economy of natural resources in Latin America, more specifically on the interplay between resource rents,politics and development. The panels will include seven papers that cover quantitative and qualitative research on Argentina, Colombia, Ecuador, Peru and Venezuela. Below I share the information about the panels, dates, papers, authors and abstracts.


Panel Title: The political economy of natural resources in Latin America: Resource rents and Development (Part I)

Date: Mon, May 1, 2:00 to 3:45pm (Lima, Peru)

Session organizer:

-       Juan D. Gutiérrez-Rodríguez, DPhil (PhD) student in public policy, University of Oxford

Chairs / Discussants:

-       Osmel Manzano, Adjunct Professor, IESA

-       Juan D. Gutiérrez-Rodríguez, DPhil (PhD) student in public policy, University of Oxford

Panel Abstract:

The last commodity boom (circa 2003-2014) significantly increased fiscal and non-fiscal revenues for national and subnational governments in Latin America and expanded economic activities linked with the extractive sectors. What legacy was left by the last super-cycle of commodities in the region? Did the governments and extractive companies deliver their promises about the benefits that communities would enjoy after the windfall of natural resource revenues? If not, was the last commodity boom just another chapter of the so-called resource curse? The objective of the proposed panel is to study the political economy of natural resources in different countries of Latin America from a national and subnational perspective. Hence, the panel explores natural resources in light of “the interface between political forces, institutional inheritance and economic outcomes” (Thorp, 1990: 8). Furthermore, the panel focuses on the developmental outcomes after the last commodity boom in Latin America based on theory and empirical evidence (quantitative and qualitative).

Papers:

1. Educational Resource Curse? Canon Minero, Institutions and Human Capital Formation in Peru

Authors: Jose Carlos Orihuela (Associate Professor, Pontificia Universidad Católica del Perú), César Huaroto (PhD student on Universidad Nacional de La Plata, Argentina), Ismael Muñoz and Franco A. Calle (Pontificia Universidad Católica del Perú)

Abstract: In contrast with the work in progress by Agüero et. al. (2016), we expose a story of mixed educational outcomes associated to canon minero redistribution. The big picture is that the boom is correlated with educational progress in part because natural revenues can be used to increase quality and quantity of school’s production function physical & technological inputs. Our first results, based on geographical discontinuous regressions, suggest that schools located in canon rich areas have more input related characteristics. Second stage results, based on panel stochastic frontiers and data envelopment analysis, suggest that canon is correlated with higher efficiency mainly because of input quality improvement. However, results are heterogeneous: schools with equivalent socio-demographic characteristics and canon transfers significantly differ in their performance.

Alike Agüero et. al. (2016), we hypothesize that political economy and local institutional dynamics matter for human capital formation, yet we find reductionist their assumption of a representative political agent disciplined by electoral competition. Instead, the typology of cases we document is compatible with more complex assumptions where not only local institutional arrangements contribute to a better management of canon minero for education. In particular, school level institutional characteristics like principal leadership and the school accountability system seem to be behind school performance heterogeneity.

 

2. “Sowing the Oil” in Neo-Extractivist States: Narratives of Economic Diversification in Ecuador

 Author: Pedro Alarcón, Facultad Latinoamericana de Ciencias Sociales (FLACSO) sede Ecuador

 Abstract: Ecuadoran industrialization narratives since the beginning of the oil era in 1972 serve as provocation to set into debate the return of the developmentalist state founded on natural endowments. Whilst the classic developmentalist state model provided social and political rationalization to discuss import-substitution industrialization (ISI) based on comparative advantages (i.e. natural resources) within a specific historical context, the developmental state theory offers an explanation for the successful process of the East Asian NICs (newly industrialized countries) based on competitive rather than comparative advantages. These theoretical inputs are proposed to approach forty-five years of Ecuadoran recent economic history in order to revisit the problem of “sowing the oil” or attaining industrial development within natural resource-dependent economies.

 

3. Few linkages, plenty of conflict: Characterizing Peru's local resource curse 

 Authors: Jose Carlos Orihuela (Associate Professor, Pontificia Universidad Católica del Perú), César Huaroto (PhD student on Universidad Nacional de La Plata, Argentina), Maritza Paredes and Mayte Ysique (Pontificia Universidad Católica del Perú)

 Abstract: Curses and blessings of resource-based development are unevenly distributed across space in Peru. Thanks to the mining boom beginning in the mid-1990s and largely based in the Andean mountains, Peru has experienced one of the highest rates of economic growth in Latin America over the last two decades. However, we show evidence that characterizes the mining boom as a “curse” for Peru’s mining districts, where about 40% of families depend on agriculture and cattle economies. Comparing mining areas with suitable counterfactuals, we find that mining development has not improved economic conditions of farmers, while worsening political conditions by expanding local conflict. We use a combination of statistical methods such as PSM, DiD and Regression Discontinuity to isolate the effect of mining and canon. Economic development of the last two decades can be argued to be a blessing for Peru’s rentist center, at least while the boom lasts, but a curse for its resource periphery, therefore generating more economic and social inequality. 

 

4. Beyond Curse and Blessing: Discussing Oil and Development in Latin America

 Author: Stefan Peters, Assistant Professor at the Faculty of Social Sciences, Kassel University, Germany

 Abstract: Until recently, the resource thesis has been treated as conventional wisdom in Developmental Studies. However, with the beginning of the 21st Century a new ‘resource optimism’ arose in both academic debate and international organizations. Several academic publications relativized or even totally neglected the resource curse thesis, highlighting specific ‘resource challenges’ and stressing the potential of resource-led development models. During the recent ‘commodity super-cycle’ this perspective was empirically backed the positive economic and – in many cases even – social development performance of resource-based development models all over the world. In Latin America the neo-extractivist development model did not only provoke controversial debates, but it also strengthened political support for incumbent governments. However, with the important drop of commodity prices, crisis came back to resource-dependent countries and the resource optimism of former years is fading away.

 The paper discusses resource-led development models with a focus on oil-dependent societies in Latin America. Based on empirical evidence from Venezuela, Ecuador and the Argentinean Province of Chubut, it critically reexamines the resource curse vs. resource blessing debate. It highlights some shared shortcomings of the debate and argues for a more sociological foundation of the debate on resource-led development models that focuses on the (re-)production of social inequalities and power relations due to rent distribution and on the social imaginaries related to oil-based development models.

 

 

Panel Title: The political economy of natural resources in Latin America: Resource rents and Politics (Part II)

 

Date: Mon, May 1, 4:00 to 5:45pm (Lima, Peru)

Session organizer:

-       Juan D. Gutiérrez-Rodríguez, DPhil (PhD) student in public policy, University of Oxford

 

Chairs / Discussants:

-       Osmel Manzano, Adjunct Professor, IESA

-       Jennifer Pribble, Associate University of Richmond, Professor of Political Science and International Studies

 

Panel Abstract:

More than 30 national governments share a significant amount of mineral and hydrocarbons rents to subnational governments. In Latin America, subnational governments from Argentina, Brazil, Chile, Colombia and Peru have access to substantial resource revenues. These governments received a fiscal windfall generated by the last commodity boom (circa 2003-2014) that financed an increase of public expenditure. However, empirical studies suggest that the impact of such investments was not commensurate to the billions spent by Latin American local governments. Nevertheless, the research on the existence of a subnational resource curse has produced mixed results and is less conclusive than the national resource curse literature. The objective of the proposed panel is to review and discuss empirical research (quantitative and qualitative) on the subnational resource curse with an emphasis on the political economy of oil, gas and mineral revenues at the subnational level. Hence, the panel explores the effect of the abundance of resource revenue over political institutions and how politics, in this context, drives the use of extractive rents subnational by governments.

 

Papers:

1. In Arauca, everyone eats the same cake: oil

 Author: Juan D. Gutiérrez-Rodríguez, DPhil (PhD) student in public policy, University of Oxford

 Abstract: Arauca is a Colombian municipality that has received a fiscal windfall since the mid-1980s after the discovery of an oil field in is territory. The oil boom took place in a context where political and economic institutions were underdeveloped and where the state did not have the monopoly of force. Despite of three decades of public investment of oil revenues by the subnational government the population’s wellbeing is still below the national average. The interests of different non-state armed groups, which compete for the capture of rents and use political violence often drove investment decisions of oil revenues. Many politicians and civil society were not able or willing to challenge the status quo, but rather adapted to those dynamics and played the tune set by non-state armed groups.

The objective of this chapter is to explain why, from a political economy perspective, oil revenues have been poorly managed in Arauca. Hence, the text identifies the interaction of actors, interests and events that may explain the relationship between the abundance and dependency on natural resource revenues (independent variable) and the quality of public investment management (dependent variable) in the case of Arauca. Moreover, the economic and political institutions of Arauca are also considered as intermediating variables. This paper is based on fieldwork carried out in Bogotá and Arauca in February and March 2016 and on quantitative data on subnational governments in Colombia from state, university, think tank and NGO databases.

2. Varieties of Nontax Income and the Reproduction of Subnational Regimes: Are Resource Rents and Intergovernmental Transfers The Same?

Authors: Diego Diaz, Universidad Católica de Chile, and Agustina Giraudy, American University

Abstract: Contrary to arguments that treat foreign aid, unconditional intergovernmental grants, and natural resource rents as analytically equivalent, this paper contends that different types of nontax income generate disparate political effects on the patterns of reproduction and durability of subnational regimes. In particular, the paper focuses on how oil-rich and transfer-dependent provinces differ in their modes of political reproduction (from above or below) arguing that the different economic structure of these rentier economies shapes 1) the ability to sustain large patronage machines and 2) the fiscal relations with the center. While mineral rich provinces have an independent source of wealth from which to extract and accessible partners and lenders (i.e., provincial and/or private extractive companies; national and international banks granting oil-backed loans), those that depend on fiscal transfers have serious problems to issue debt and lack the ability to extract income beyond that provided by the national level. This difference is critical to explain different trajectories of reproduction and sustaining of non-competitive regimes over time, which commonly run budget deficits owing to their large patronage machines. Provinces with hydrocarbon income are fiscally autonomous from central governments and have access to resources with which to pay for the inelastic patronage expenditures required to reproduce themselves, and hence, are likely to last longer. In turn, those that depend on unconditional transfers are unable to sustain large budgets for protracted periods, so the political advantages of rentierism are only short-term. Here, provincial incumbents either fail to satisfy clientelistic demands or must cooperate and borrow from the national level, and thus, are reproduced from above. The paper illustrates the argument with a subnational within-country comparison of the Argentine provinces of Santa Cruz and Formosa.

 

3. Oil Rents and Patronage: The Fiscal Effects of Oil Booms

Authors: Lucas González, Universidad Católica Argentina-Universidad Nacional de San Martin 

Abstract: Rentier state theories argue that disproportionately high rents from natural resources generate adverse political, economic, and social outcomes. However, the empirical evidence for the theoretical expectations of rentier theories is mixed. This work takes up this discussion and analyzes whether a large increase in oil rents augments patronage spending and clientelism, something that part of the literature sees as a key causal connection between rents and authoritarian regimes. Contrary to the expectations of rentier theories, it argues that sharp increases in oil rents could be associated to decreases in patronage spending, rather than the opposite. Patronage spending tends to augment when rents decline in contexts of job destruction in the oil sector and when partisan fragmentation in oil provinces is large. Under those circumstances, incumbents use patronage to contain social discontent and secure their core voters. On the other hand, an increase in rents in contexts of job creation in the oil sector and low partisan fragmentation in the district will increase capital investment, which incumbents use to target broader constituencies and potentially increase their electoral returns. A key contribution of this study is that it relies on original subnational data on oil rents and provincial revenues and expenditures for the 24 subnational units in Argentina in the period between 1983 and 2013, instead of using aggregate national level data. The paper discusses the findings in the Argentine provinces and explores the theoretical implications for the comparative debate on the political and socioeconomic effects of oil rents. 

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