Dutch Disease vs. Nigerian Disease
Prior to the 1980s, it was believed that natural resource abundance would enable developing countries to make the transition from underdevelopment to industrial “take off”, just as it had done for countries such as Australia and the U.S (Rostow, 1961; Stages of Economic Growth). This view now stands challenged by a number of studies that demonstrate the existence of a “resource curse” – slower growth and poorer economic performance in natural resource rich countries.
The traditional explanation for the resource curse is the Dutch Disease or “deindustrialization”. That is, revenue from natural resources hurts traditional manufacturing through an increase in the exchange rate; also, resources such as labor and capital need to be moved from manufacturing to natural resource production. Most studies on the Dutch Disease stop here although the argument is far from complete.
We still need to show that traditional manufacturing offers better growth opportunities than natural resource sectors. Some studies such as Hirschman (1958; The Strategy of Economic Development) and Baldwin (1966; Economic Development and Export Growth: A Study of Northern Rhodesia, 1920-1960) do argue that the relatively small “backward and forward linkages” from natural resource to other sectors limit the growth potential of natural resource rich countries, but the debate is far from settled (also see, Sachs and Warner, 1995).
Recent work suggests another explanation of the resource curse – the Nigerian Disease. That is, an abundance of natural resources leads to poorer governance and conflicts. It gives rise to governments that are less accountable to the people, have little incentive for institution-building, and fail to implement growth enhancing reforms. Higher corruption, more rent-seeking activity, greater civil conflict, and erosion of social capital are some of the outcomes associated with the Nigerian Disease (see, for example, Rosser 2006). While it too early to draw any definitive conclusion on the relevance of the Nigerian Disease, the early results do suggest a possible way out of the resource curse - greater emphasis on institution-building and government accountability.
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I think you are doing Nigerians a disservice by calling this "Nigerian Disease". It is not Nigerians doing the bribing - it is us. We should call it "western oil company disease" or something.
Posted by: Owen Barder | Apr 29, 2009 2:50:43 AM
Bracing up to the challenges faced by Nigerians over the various "labels" tagged over the years, things are really changing and you just need to watch the next biggest world's nation as time passes by. We now have a newer and brighter perspective to managing our resources better today.
Posted by: Femi Oye | May 1, 2009 5:22:48 PM
Not just oil. Any Third World country within which strategic natural resources are discovered somehow becomes more pliable and easier to exploit whether via corruption or conflict. The “resource” could simply be strategic location, close to the real resource of interest. Historically, resistance to unfair external exploitation of resources or manipulation of economies has been met with pressure to accept crippling World Bank / IMF loans with the attendant sanctions/conditions on one hand, and occupation, assassinations, “nation-building,” etc., on the other, until compliance is achieved. All this academic discussion seems like misdirection. The true root cause is quite clear. Developing countries never seem to have these particular problems until resources are discovered.
Posted by: Dauda Ladipo | May 14, 2009 9:45:29 AM
I am dissapointed that a blog which I deeply respect would view this situation in such a simplistic manner. I am beginning to tire of this backward analysis of the problems of developing countries. Can you "experts" not simply understand that it ALL begins with corruption and that this corruption is at the root of our problems not some result of any kind of indulgence.
Institution building is the simple result of political will. It does not matter what natural resources you have or lack. Indulgence does not play into this in any way. Where this "Nigerian curse" idea records an epic fail in its diagnosis is it disregards the role foreign actors play. Who do you think facilitates corruption in developing countries and stifles civil society's actions to hold their governments accountable: transnational companies. They do this with the active help of their governments.
Someone mentioned in a comment above that there is a connection between problems in developing countries and the "discovery" of resources. Of course there is. But let us draw the correct lines. When resources are discovered, who swarms the ports and government houses looking for an "up" in exploration negotiations? Transnational companies! Halliburton is a good example of such. Once natural gas became a hot commodity--K&B and some other companies began haranguing our officials to get the upper hand in the concessions to be awarded. So nobody should give me this resource curse garbage. The curse is foreign interference, not resources.
What Africa should do is utilise its resources in our development instead of selling to a greedy world. Imagine if Nigeria stopped shipping oil to America and refined it to sell to other African countries on its soil. Imagine if we gave up this insane dream of having Europe and America open its borders to our food and began selling it across the continent of Africa to the 900 million African people who need it and can afford it?
This may seem a hackneyed point but what is really at the root of Africa's problems is colonialism. Our economies have been so linked to the outside that smart protectionism (within Africa of course) is not even an option for us. Our economists have been brainwahsed with an economics that tells them that Africa's development lies in coupling its economy to the west rather than focusing on self stimulation. We all know that is rubbish. We should be trading with ourselves and investing in ourselves. Rather unfortunately, it is easier for Nigeria to sell its oil to the US than it is for me to sell to nearby Cameroon. Rwanda wants to sell "fair" trade tea and coffee to Canada when there are people in Ghana who would gladly do with it. Ivory Coast sends it Cocoa all the way to Switzerland when Nigeria would gladly do with it.
That is what is at the root of our problems. In fact forget about "eliminating" corruption because I believe that is an evil that will always remain with us (as it has with the rest of the world). What we should be focusing on is making corruption less of an attraction by creating other oppurtunities for advancement. Clearly detterence is not enough. We can do this whilst preventing conflict by integrating Africa's economies to ensure free flow of people, goods and services across Africa. This is the secret of development for post war Europe, I don't understand why these "experts" continually ignore it.
So if you are looking for a nom de guerre (yes its a war against poverty) for developing countries curse/disease...you will be better advised to pick "Foreign Investment disease" because Lord knows Africa will do well without crooks from Wall Street or Nixonians from Foggy Bottom!
Posted by: Iyinoluwa Aboyeji | May 15, 2009 12:28:39 PM
Hi All,
In Mohammad's defense, he does not actually discuss in this post the mechanisms by which natural resources can lead to poor governance. Of course, I'd like to hear his views on this.
As far as the PSD blog goes, I think we've been attentive to the fact that Western/transnational corporations are - at times - definitely complicit in the problem of corruption in developing countries. See, for instance:
http://psdblog.worldbank.org/psdblog/2009/04/the-other-dirty-secret-on-the-banks-balance-sheets.html
http://psdblog.worldbank.org/psdblog/2008/09/cooperation-in.html
Of course, you might be right that "Nigerian Disease" is not the best descriptor. So far we have "western oil company disease" and "foreign investment disease." Any other suggestions?
Posted by: Ryan Hahn | May 15, 2009 3:11:05 PM