Issues in Global Political Economy - Research Paper Example

ISSUES IN GLOBAL POLITICAL ECONOMY and Issues in Global Political Economy Before the 1980’sthere was a universal agreement on the relationship between abundance of natural resources and development. Natural resources were believed to key to development. Any country lucky enough to discover substantial and diverse natural resources would have a higher chance of attaining rapid economic growth compared to other countries. Countries cited to have achieved development through the exploitation of its natural resources include the United States, Britain, and Australia. These resources would aid third world countries to advance like industrialized countries. However, after 1980 there have been different views challenging the belief that natural resources were a blessing when it comes to development. They challengers of the belief claim that natural resources increase the probability of nations experiencing economic, political and social downfall (Sachs & Warner 1995, p.67). The argument is now the conventional wisdom. The essay tries to establish whether resource-rich economies are rather poor, underdeveloped and politically unstable. Research has shown that natural resource abundance hinders economic growth. Many countries in African have plenty of natural resources such as gold, oil, and copper among many others. More than two-thirds of their products moving outside the country are natural resources, and yet these nations are poor and politically unstable. The countries depend on foreign investors for their economic feasibility (Mikesel 1997, p.81). For instance, in 1970, states in sub-Saharan Africa with plenty of natural resources experienced slow growth rate compared to countries that were not rich in mineral resources (Wheeler n.d., p.36). Additionally, approximately 95% of Nigeria’s export revenue comes from oil and although this valuable resource has boosted the country’s economy considerably the living standard of its citizen has not improved. During the boom period experienced between 1971 and 1983 natural resource economies experienced a more severe deterioration when it came to efficiency in the creation of domestic capital compared to non-minerals countries (Martin & Subramanian 2003, p.89). Consequently, the economies of the countries rich in natural resources experienced negative growth. Other countries rich in oil minerals such as Iran, Kuwait, and Libya experienced slow growth in the last several decades. Moreover, members of the OPEC, in general, experience a fall in the GNP per capita whereas states not rich in minerals enjoyed a growth in their GNP per capita. South Africa went through a period of de-industrialization and a disappointing economic growth in the 1970s during the boom in gold prices. Several factors led the effects key of them being that the real exchange rate appreciated, and depreciation followed after that. The world saw a shift in making of cocoa paste from countries such as Peru and Venezuela to Colombia after the disruption of the air bridge. Consequently, a booming demand for Colombian coca was experienced, and many people in Columbia became self-employed, and teenagers in the rural areas got work to do. Although, the boom had economic spillover effects as well as financial opportunities it marked the beginning of violence and conflicts in major cities. Many countries around the world that are endowed with abundant natural resources have been experiencing political instability. Civil wars have become a norm in these countries. These issues regarding instability have been associated with resource abundance. Countries such as the Congo have plunged into endless internal conflicts with natural resources in the country being termed as the cause. Other countries such as Sierra Leon depend on the export of gold for their economic stability. As a result, corruption in the mining industry has been marred by corruption with financiers playing a critical role is fuel the civil war that was witnessed in recent years. Additionally, resource exploitation has in the past led to conflicts among nations. For instance, Uganda has been in conflict with Congo over some minerals. There are allegations that Uganda has been funding rebels to destabilize the government of Congo (Bannon 2003, p.113). Nevertheless, some countries such as Botswana has gone against the notion and recorded economic growth as well as political stability. Diamonds contribution accounts to 40% state’s gross domestic product (GDP). Additionally, Botswana spends much of its gross domestic product on education. Furthermore, Botswana enjoys the highest growth rate globally since the 60’s and the country’s gross domestic product per capita surpasses that of Nigeria. The country was able to attain the development after it gained independence a period that they were short of experience in investment area and inequality was high (Acemoglu & Johnson 2002, p.78). Other countries with massive natural resources such as Indonesia, Malaysia and Thailand were able to achieve development through diversification and industrialization although their neighbors such Hong Kong did much better economically without the natural resources. The United Arab Emirates boasts of 10 % of the world oil and up to 4 % of natural gas, but it has not been affected by the resource curse. The country has turned the resources into a blessing and is one of the envied countries in the world. Their government debt and inflation rates are quite low. The hydrocarbons energy reserves in the country have been used to improve the country’s infrastructure create job opportunities and put in place a generous welfare scheme. The country has further made major strides in providing free and universal access to education and health and in turn improves both the life expectancy and literacy levels of its people. The oil and gas resources are expected to be depleted in a few years, and the country has put a lot of emphasis on petrochemicals and fertilizers. It has further diversified to include light manufacturing, telecommunication, and tourism to bolster its economy. Other members of the Emirates have put their focus on agriculture; quarrying and cement manufacture (Karl 1997, p.56). Other countries to have defied the resource curse are in Latin America. The countries have abandoned their stringent policies and have welcomed foreign investors into their mining industries and increased the security of mining investments. Consequently, in the wake of 1990 Latin American appeared to the greatest mining industry ahead of the U.S., Canada, and Australia regarding the money spent in mining. Chile has made remarkable economic development recording an annual growth rate of about 8.5% with mining contributing to approximately half of the exports. Peru is one the leading producers of silver and tin as well as gold and zinc among many other metals. Brazil and Argentina are other economies that seem to be doing well. It is, therefore, important to note that whereas some resource-rich states such as Congo and Nigeria fit into the belief that a natural resource is a form of a curse some countries such as Botswana and the United Arab Emirates are developing economically because of these resources (Mitra 1994, p.132). One of the reasons being flaunted as to why countries with plenty of resources are under-development, poor, and political instable are summed up by the famous Dutch disease. The “Dutch Disease” was meant to explain the reason the Dutch manufacturing industry declined after natural gas was discovered in the country. The theory states that “if a countrys resource-based traded goods sector booms” (Davis, n.d, p. 1753), it causes a significant alteration of state’s macro economy and causes to effects namely the resource movement effect and spending effect (Davis n.d, p. 1753). The resource movement implies that capital and labor are moved from others sectors of the economy to boost the booming resource sector leading to slowed development. The spending effect refers to a situation where income from resourceful sector or additional revenue causes an increase in the need for non-traded commodities hence causing a diversion of labor from manufacturing sector. These effects result in increased real exchange rate due to the movement of revenue and increased demand for non-traded goods results in higher prices. Since the prices of manufactured goods are set internationally, they remain the same and in turn lead to frail, less competitive manufacturing sector triggered by high costs of exports and cheaper imports. In the end, the country is left to depend on its natural resource sector (Davis, n.d., p. 1772). Nigeria offers a good example of the Dutch disease. The country over-relied on their oil exports and thus killed other non-resource sectors. The movement of resources and huge expenses moved resources away from other sectors like agriculture. The government resorted to borrowing to fund its public expenditure as well as investment projects while banking on the success of the oil sector. However, in 1980 in what was termed as oil glut the oil prices dropped, and Nigeria experienced budget deficits. It became evident that the government cannot be sustained by some sectors given that the agricultural industry had failed forcing the country to import food from outside (Drake n.d., p.71). In sum, the notion that resource-rich countries are underdeveloped and politically unstable is more of a political issue rather than an economic issue. The fact that there are ways of solving the issues pertaining the problem reinforces that resource curse is political and avoidable. Underdevelopment and political instability are more of wrong decisions than resources. Nevertheless, it must be noted that the association between resources and development as well as stability is likely to depend on where the resource is discovered. For instance, the discovery of natural resource in the United States would not have the same effects as it would in a country like Kenya. The levels of competence within the policy makers as well as the effectiveness of institutions will determine whether the resource will end up as a blessing or a curse. References Acemoglu, D, & Johnson, S 2002, An African success story: Botswana, Centre for Economic Policy Research, London. Bannon, I 2003, Natural resources and violent conflict: Options and actions, World Bank. Washington, D.C. Davis, G n.d., Learning to love the Dutch disease: Evidence from the mineral economies. Drake, P n.d., Natural Resources Versus Foreign Borrowing in Economic Development. The Economic Journal, 951-951. Karl, T 1997, The paradox of plenty oil booms and petro-states, University of California Press, Berkeley. Martin, X, & Subramanian, A 2003, Addressing the natural resource curse: An illustration from Nigeria, National Bureau of Economic Research, Cambridge, MA. Mikesell, R, 1997, Explaining the resource curse, with special reference to mineral-exporting countries. Mitra, P 1994, Adjustment in oil-importing developing countries: A comparative economic analysis, Cambridge University Press, New York. Sachs, J & Warner, A 1995, Natural resource abundance and economic growth, National Bureau of Economic Research, Cambridge, MA. Wheeler, D n.d, Sources of stagnation in sub-Saharan Africa. 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