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The Rent Curse: Natural Resources, Policy Choice, and Economic Development

Online ISBN:
9780191867330
Print ISBN:
9780198828860
Publisher:
Oxford University Press
Book

The Rent Curse: Natural Resources, Policy Choice, and Economic Development

Richard M Auty,
Richard M Auty
Professor Emeritus in Economic Geography, Lancaster University, UK
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Haydn I Furlonge
Haydn I Furlonge
Adjunct Lecturer, Arthur Lok Jack Graduate School of Business, The University of the West Indies, Jamaica
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Published online:
24 January 2019
Published in print:
20 December 2018
Online ISBN:
9780191867330
Print ISBN:
9780198828860
Publisher:
Oxford University Press

Abstract

This book analyses the political economy of economic development using two stylized facts models of rent-driven growth. The models show that: (i) the resource curse is a variant of a wider rent curse that can be driven by geopolitical rent (foreign aid), labour rent (worker remittances), or regulatory rent (government manipulation of relative prices); (ii) the rent curse is caused by policy failure and is avoidable; (iii) the global incidence of the rent curse varies over time, which reflects development policy fashions; and (iv) the intensity of the rent curse also varies with rent linkages. Rent cycling theory posits that low rent incentivizes the elite to grow the economy to become wealthy, whereas high rent encourages siphoning rent for immediate enrichment at the expense of sustainable and diversified economic growth. The contrasting incentives trigger divergent policies and structural change. Low rent motivates the efficient allocation of inputs in line with the economy’s comparative advantage in labour-intensive exports, which drives: structural change; rapid egalitarian economic growth; and incremental democratization. High rent, however, elicits contests to capture rent for immediate enrichment so the economy absorbs rent too quickly. The economy experiences Dutch disease effects that expand a subsidized urban sector whose rent demands outstrip supply, resulting in a staple trap and a protracted growth collapse. The economy fails to diversify competitively and depends for growth on expanding rent rather than on competitive diversification that boosts productivity. The book uses the models to explain why many developing countries in Latin America, Sub-Saharan Africa, and the Gulf followed a staple trap trajectory and draws on East Asia and South Asia for reform.

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