Trade, poverty and lagging regions

Krishna, Mitra and Sundaram have an interesting NEBR working paper 16322 where they show that states with lesser openness to international trade generally have weaker transmission of international prices to domestic prices. It means that poverty is high in lagging regions due to a lack of exposure to international markets. They also show that countries with lesser proportion of the population in lagging regions experience greater reduction in poverty rates following trade liberalization. They suggest that in order to make gains from trade equitable, there has to be adequate provision of infrastructure, including equipped ports, better and more extensive roads and communication links.

Generally, increase in trade (read exports) boosts economic growth rate. The growth, in most of the cases, translates into reduction in poverty (on an average) as there is rise in national income. However, the distribution of gains from trade is not always uniform, meaning that some gain, others won’t, or even some might lose. Lagging regions might not benefit from trade because transportation and transaction costs might be very high. Furthermore, some regions might have market rigidities such as immobility of labor and lack of capital, which also suppresses gains from trade. Also, trade liberalization might itself lead to clustering of industries in one place, primarily due to economies of scale. This also makes distribution of the fruits of trade uneven. For instance, three coastal areas in China (the Bohai Basin, the Pearl River Delta, and Yangtze River Delta) accounted for more than half of the country’s GDP in 2005, but constitutes less than a fifth of the total geographical area.

The paper is about estimation of differential impact of trade liberalization in lagging and leading regions within a country, factors inhibiting market integration, and factors preventing trade from positively affecting development in lagging regions. The authors find that a percentage point reduction in tariff rate decreases poverty by 0.22 percent in the leading states, while the effect is insignificant in the lagging states. Within leading states, the effects of trade liberalization are also larger in urban areas: A percentage point decrease in tariff rate decreases poverty by 0.19 percent in rural sector and by 0.26 percent in urban sector in the leading states.

Price transmission from international prices to domestic prices is less perfect in lagging states than in leading ones, especially in the rural sector. The authors estimate that, in urban India, a one percent reduction in international prices implies a 0.61 percent reduction in the unit price in the leading states but a 0.53 percent reduction in the unit price in the lagging states. Meanwhile, in rural India, a one percent reduction in international prices implies a 0.60 percent reduction the unit price in leading states but a 0.34 percent reduction in the unit price in the lagging states.

They also look at the impact of trade liberalization on productivity. They find that trade liberalization has increased the productivity of Indian industry, though the impact in lagging states is “weekly smaller”. Specifically, a one percentage point reduction in tariff rate increases productivity by 0.41 percent across all leading states but only by 0.38 percent in lagging states.

In an extension to their study in India, they find that in other South Asia countries (Bangladesh, Pakistan, Nepal, and Sri Lanka), the impact of trade liberalization on poverty depends on the proportion of national population living in lagging regions. Countries with a smaller proportion of population in lagging regions benefit more from trade liberalization. A point increase in the proportion of population in lagging regions depresses the annual growth in per capita GDP after trade liberalization further by 0.01 percentage points. This might be the reason why, in Nepal, after more than two decades of trade liberalization, its fruits is hardly seen in the economy, which has seen population growth rate almost equal to GDP growth rate quite some time. At one point the country had negative per capita growth due to high population growth rate. Furthermore, the authors find (statistically “weaker”) that a point increase in the proportion of population in lagging regions decreases the annual rate of decline in poverty following trade liberalization by an additional 0.01 percentage point.

For Nepal, the authors assume that central and western development regions to be leading regions and eastern, far-western, and mid-western development regions to be lagging regions. According to the author’s classification, around 46% of the population in Nepal resides in lagging regions. The mean national average distance to capital city is calculated to be 236 Kms. Nepal liberalized trade in 1991, India 1994, Pakistan 2001, Sri Lanka 1977-83 and 1981, and Bangladesh 1996 (see Table 4 in the paper).

“Bangladesh, India and Nepal show higher regional inequality as measured by above average poor in the most lagging region as a percentage of the total poor in the economy. For these countries, a priority would be to ensure integration of backward regions and government redistribution programs to lessen inequality so that the poor may also benefit from trade reforms.”

Global economic crisis & labor market in Asia

The paper investigates the labor market and social impacts of the global financial and economic crisis in Asia and the Pacific as well as national policy responses to the crisis. It draws on recent macroeconomic, trade, production, investment, and remittances data to assess the employment and social consequences of the crisis, including falling demand for labor, rising vulnerable and informal employment, and falling incomes and their related pressures on the working poor. The paper provides some projections of the impact on unemployment, vulnerable employment, working poverty, and labor productivity in the region in 2009. It demonstrates that labor market recovery is likely to lag behind output growth, based on the experience of Asian labor markets following the 1997 Asian financial crisis. The paper underscores some policy options that are likely to have positive outcomes toward generating employment and boosting aggregate demand, improving social protection and welfare on the basis of decent work principles, and promoting a sound and sustainable economic and labor market recovery.

The full paper is here (Impacts of Current Global Economic Crisis on Asia's Labor Market)

What China & the US should do to revive the Doha Round?

For starters, China should agree to join the WTO's Government Procurement Agreement (GPA), which ensures public agencies open procurement to companies from other GPA signatories. Furthermore, it should bind its provincial administrations as well as the central government in Beijing to its rules. Such steps would guarantee that foreign products enjoy nondiscriminatory treatment and would quiet concerns over Beijing's "indigenous innovation" program, which strongly favors Chinese firms. At the same time, China should join sector liberalization agreements in chemicals, information technology hardware, and environmental goods. Finally, China should be at the front of talks to liberalize services—not dragging the rear, as it is now.

If China acts as a leader in the trading system, it should be recognized as one. In its WTO accession agreement, China reluctantly agreed to be treated as a nonmarket economy in antidumping cases until 2015, which meant that its exports could be subject to safeguards with a lower trade impact threshold ("market disruption") than normal safeguards applied to other WTO members ("serious injury"). This provision was invoked by Obama last year, when the United States slapped high duties on inexpensive car tires made in China and imported by Walmart and other budget retailers. China also agreed in advance of its WTO accession to submit to annual compliance reviews, which Beijing considers humiliating. In return for concessions on government procurement and services, the United States and other developed countries should grant China recognition as a market economy—with normal remedies in antidumping and safeguard cases—and also put an end to annual compliance reviews.

Meanwhile, the United States should phase out cotton subsidies—which were ruled illegal by the WTO two years ago—and put a cap of about $9 billion annually on all its agricultural subsidies. Washington should also agree to extend duty-free, quota-free treatment to virtually all the exports of the least developed countries and allow duty-free imports on all manner of environmental goods, including ethanol. Such a gesture would give substance to the development promise of the Doha Round and, in a modest way, put the United States on the right side of the climate agenda.

If China and the United States are on board, other major players will feel enormous pressure to contribute. India, with its demonstrated interest in maintaining open markets in information services, would likely join the services talks and sign on to the GPA. Brazil and other successful developing countries would do the same and contribute concessions on industrial products.

These proposals could make the Doha Round a political winner: Major concessions by China and a few other emerging countries would be seen in the United States as evidence of greater access in markets that count. And China would advance its status as a full participant in the world trading system, while also positioning itself as the leader that delivered the benefits of the Doha agenda to all developing countries. The world would recover that much faster from the hangover of the Great Recession.

More by Haufber and Lawrence from Peterson Institute for International Economics here. 

In June, PIIE came out with a study that said that the total gains from the successful conclusion of the Doha Round (to 7 developed and 15 developing countries that together account for roughly three-quarters of all global imports and exports and nearly 90 percent of global GDP) would be US$280 billion per year. Studies show varying gains from trade under the Doha Round mainly because of the assumptions they work with. For the evolution of various proposals since 2001, here is a good note.

In 2005, a World Bank study put a bombshell on the overly optimistic estimations of gains from trade. The study showed that under the "likely Doha scenario", the global gains in the year 2015 would be just $96 billion, with only $16 billion going to the developing world. This means the developing countries would see a one-time increase in income of just 0.16 percent of GDP. Also, it showed that only 6.2 million people would be lifted above the $2 per day poverty line (it represents just 0.3 percent of those living in poverty worldwide). Worse, most of these gains would go to the developed world and those that goes to the developing world is largely distributed among few countries. Half of all the benefits are expected to flow to just eight countries: Argentina, Brazil, China, India, Mexico, Thailand, Turkey, and Vietnam. Furthermore, this study by Carnegie Endowment shows that total gains from trade to be between $32-55 billion, with rich nations getting $30 billion; middle income countries like China, Brazil and SA getting $20 billion; and poor countries getting $5 billion (about $2 per head).

Here is a policy brief by Gallagher and Wise that contests the estimation of gains from trade by PIIE economists. Kevin Gallagher and Tim Wise argue that the assertions of PIIE rest on "shaky assumptions, controversial economic modeling, misleading representations of the benefits, and disregard for the high costs of Doha-style liberalization for many developing countries." They wonder how the economists found another  $150-$350 billion in benefits for developing countries that the World Bank missed in 2005.

The gains in the new study from agriculture and non-agricultural market access (NAMA) are of the same order of magnitude as previous studies, about $100 billion, with the vast majority going to rich countries.

The new estimates for services, sectorals, and trade facilitation are highly speculative, use methodologies that are unproven, and assume far more ambitious outcomes than seem at all likely at this point.

Peterson finds high gains in services and sectorals because they assume that developing countries will make big concessions and that those same countries are big winners (from lower prices) even if they lose significant parts of those sectors to imports.

The estimates of $365 billion in gains from trade facilitation are particularly exaggerated, because they assume not only agreement on reforms but resources for the vast investments in infrastructure and human capital needed to make them happen.

The claims of “balance” are unfounded, as developing countries receive less than one-third of the projected income gains. Previous modeling has shown that many poorer regions, such as Sub-Saharan Africa, are projected to be worse off after an agreement.

As with most such projections, researchers disregard the costs of liberalization for developing countries. Tariff losses just from NAMA reforms are estimated at $64 billion, far more than the estimated gains to developing countries. As countries struggle to recover from the financial crisis, this is not the time to cut needed government revenues. Terms of trade for developing countries are 

projected to decline significantly, as they shift back toward primary production rather than forward toward industrial or knowledge-based development.

Nepal’s macroeconomic review of FY 2009-10

Notes and views on the major indicators as outlined in annual macroeconomic review 2009/10 of Nepal. A related excel file can be downloaded here.

● GDP growth rate 3.5%. Last year it was 3.9%

● Agricultural and non-agricultural sector growth 1.1% and 5.1%, respectively. Last year, they grew at 3% and 4.7%, respectively. The drag from agricultural sector was so strong that despite non-agricultural sector showing promising growth, overall GDP growth rate still is less than growth last year. Production of paddy and maize declined by 11% and 3.9%, respectively.

● Revenue mobilization amounted to Rs 179.95 billion, which accounted to 101.9% of annual budget estimate. Good news! Revenue/GDP = 15.2 (14.5 last year). Revenue slices: VAT Rs 53.46 billion, customs revenue Rs 35.3 billion, income tax revenue Rs 33.65 billion, and excise revenue Rs 24.31 billion. Non-tax revenue was Rs 25.28 billion, a decline by 4.3% as receipts of the government from principal, interest and dividend declined. Foreign cash grants increased by 1.9% to Rs 24.85 billion.

● Government expenditure increased by 20.2% to Rs 248.37 billion (Rs 206.69 billion last year), mainly due to growth in recurrent (Rs 144.38%, a rise of 20.7%) and capital expenditure (Rs 75.38 billion, arise by 20.2%)..

● Budget deficit/GDP is 3.3% (3.5% last year). Looking just at the figure, this is good, but note that there is less budget deficit due to low development expenditure. It was financed mainly by the issuance of securities worth Rs 29.91 billion, which is 2.5% of GDP. External cash borrowing was Rs 4.278 billion and net domestic borrowing was Rs 28.15 billion. Total outstanding debt amounts to Rs 157.86 billion.

● Gross consumption/GDP is 90.6 (0.3 percentage point increase from last year’s figure)

● Domestic savings/GDP is 9.4

● Gross capital formation/GDP is 38.2 (31.9 last year)

● Gross fixed capital formation/GDP is 21.3

● Gross national disposable income/GDP is 125.1 (126.4 last year during the review period).

● Annual average CPI was 10.5% in 2009/10 (13.2% in 2008/09). Food and beverage prices increased by 15.4% while non-food and services prices rose by 4.7%.

● Average salary index rose by 17.2% (15.3% increase last year)

● Merchandise exports down by 9.7% to Rs 61.13 billion (14.2% rise last year reaching Rs 67.70 billion). Exports to India declined by 2.2% (last year it increased by 6.4%). Exports to other countries declined by 21.3% as against a growth of 28.9% last year.

● Merchandise imports increased by 33.2% to Rs 378.80 billion (28.2% growth reaching Rs 284.47 billion last year). Imports from India grew by 34.2% (14.1% last year) and imports from other countries grew by 31.8% (53.4% last year).

● Trade deficit expanded by 46.5% to Rs 317.67 billion (33.3% rise to Rs 216.77 billion last year). BOT with India rose by 46.5% as compared to 17% last year. BOT with other countries increased by 46.7% compared to a growth of 62% last year. This is alarming. We need to do something urgent and possibly implement miraculous policy to boost exports or curb imports of luxury items. The widening BOT is simply unsustainable in a nation where population growth rate is close to the GDP growth rate and consumption rate is just ten percentage points shy of total GDP. Period.

● Balance of payments (BOP) deficit was Rs 2.62 billion as against a surplus of Rs 44.76 billion last year. Current account deficit is Rs 32.35 billion as against surplus of Rs 41.44 billion last year. Trade deficit Rs Rs 317.76 billion, services trade deficit Rs 16.84 billion, transfer account surplus Rs 282.65 billion (last year Rs 249.49 billion surplus), workers’ remittances Rs 231.73 billion (growth of 10.5% compared to 47% last year), capital account surplus Rs 12.58 billion (Rs 6.23 billion last year), financial account deficit Rs 3.70 billion (Rs 21.20 billion surplus last year), FDI grew by Rs 2.85 billion (Rs 1.83 billion last year), and trade credit liabilities Rs 21.97 billion (Rs 19.55 billion last year).

● FDI commitment of Rs 9.1 billion (171 joint venture projects approved by DoI as against 230 projects with Rs 6.3 billion approved last year). Sector-wise new joint ventures: 50 in tourism, 72 in services, 37 in manufacturing, 1 in construction, 2 in agriculture, 5 in energy, and 4 in mining. It is expected to provide 7848 jobs. Investment commitment from India is highest, followed by Mauritius, Canada, and China. A total of 34 countries are given approval for foreign investment in this period.

● Foreign employment increased by 35.4% to 294094 (217164 last year). Employment in Malaysia stood at 113933, a 240.7% rise in comparison to the previous year. About 38.5% of total foreign employment is in Malaysia, followed by Saudi Arab, Qatar, and UAE. Qatar was the top recruiter of Nepalese employment seekers in 2008/09.

● Foreign exchange reserves dropped by 7% to Rs 266.57 billion in mid-July 2010 (Rs 286.54 billion during same period last year). It can fund merchandise imports of 8.6 months and merchandise and service imports of 7.3 months. NRs vis-à-vis US$ appreciated by Rs 4.85% between mid-July 2009 (US$1=NRS 78.05) and 2010 (US$ 1= NRS 74.44).

● M2 expanded by 14.5% (27.1% expansion last year). M1 expanded by 27.3% (11.2% expansion last year). Currency in circulation increased by 13%, demand deposits increased by 7.9%, and time deposits increased by 16.1%.

● Domestic credit expanded by 16.2% against last year’s expansion of 27.1%. Reasons: lower growth in private sector credit of the banking system.

● A total of 22 new banks and financial institutions came into operation in 2009/10: 1 commercial bank, 16 development banks, 2 finance companies, and 3 micro-finance institutions. In total: there are 27 commercial banks, 79 development banks, 79 finance companies, 18 micro-finance institutions, 16 NRB licensed cooperatives (undertaking limited banking transactions), 45 NRB licensed NGOs (undertaking micro finance transactions), and 25 insurance companies.

Incomplete comments (I will expand on these and others issues related to the report in later blog posts): The growth rate of exports has continued to decline while imports are surging, leading to a wide balance of trade deficit. Decline in exports to India due to low exports of readymade garments, zinc sheet, GI pipe, pulses and plastic utensils, among others. Exports to other countries declined in pulses, woolen carpet, readymade garments, pashmina and herbs.

Imports from India are increasing at a high rate. Major import products from India are petroleum, vehicle and spare parts, MS billet, chemical fertilizers, MS wire and rods, among others. These are moderately essential items in various sectors. So, do not expect the demand for these items to decline. In other words, given present trend, imports from India will continue to grow. From other countries, Nepalese consumers imported gold, telecommunication equipment and parts, polythene granules, silver and steel rod and sheet, among others. With exception to the import demand for gold, expect imports of other items from other countries to increase as well, unless the government curbs imports with high tariff.

The ratio of exports to imports is 16.1 (23.8 last year). As said earlier, this is simply unsustainable. We gotta do something about it. Blanket import-substitution policies are definitely not the way. Export promotion policies and encouraging consumption of domestically produced goods and services, wherever feasible, might be worth experimenting.

A rise in capital account surplus with a rise in trade credit liabilities led to narrowing down of overall BOP deficit. Generally, current account deficit matters in the overall BOP picture. We still have a huge current account deficit. So there should not be any respite that BOP deficit has narrowed down. Capital account reflects net change in national ownership of assets. Current account shows a nation’s net income, which matters for growth instead of capital account. A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Interesting side note: When the news about BOP deficit of around Rs 20 billion was revealed in the first quarter, I had argued that this might narrow down when the full annual figure comes out. There was a huge concern that was, I think, overly blown up. Don’t get me wrong. BOP deficit has to be addressed, whatever small the deficit amount is. I was just saying that we need to wait for the overall yearly figure before stretching eyebrows to the max. Even the Economic Survey 2009/10 projected a BOP deficit of Rs 19.57 billion.

There is very low domestic savings. Consumption, which is fuelled by remittances, is increasing. GNDI is still high due to high remittances. GNDI is expected to increase by 18.1% against an increase of 24.5% last year. During the review period, the decline in remittances is seen as a decline in the ratio of GNDI to GDP. Still, it is expected to increase as the remittances sector starts to come back to normal after the global economic crisis.

More later on…

Nepal's declining competitiveness

The World Economic Forum has published The Global Competitiveness Index 2010-2011. This year Switzerland is the most competitive nation. Among 139 countries, Nepal ranks 130th in terms of competitiveness with a score of 3.34 (7 being the highest; Switzerland has a score of 5.63). Last year, Nepal ranked 125th, which means that the economy's competitiveness declined by five positions. Look at the South Asian countries, India ranks 51th (two positions down from last year); Bangladesh ranks 107th (one position down); Pakistan ranks 123th (twenty-two positions down); and Sri Lanka ranks 62nd (17 positions up).

The Nordic countries continue to be well positioned in the ranking, with Sweden, Finland (7th) and Denmark (9th) among the top 10, and with Norway at 14th. Sweden overtakes the US and Singapore this year to be placed 2nd overall. The United Kingdom, after falling in the rankings over recent years, moves back up by one place to 12th position. The United States falls two places to fourth position, overtaken by Sweden (2nd) and Singapore (3rd), after already ceding the top place to Switzerland last year. In addition to the macroeconomic imbalances that have been building up over time, there has been a weakening of the United States’ public and private institutions, as well as lingering concerns about the state of its financial markets.

The People’s Republic of China (27th) continues to lead the way among large developing economies, improving by two more places this year, and solidifying its place among the top 30. Among the three other BRIC economies, Brazil (58th), India (51st) and Russia (63rd) remain stable. Several Asian economies perform strongly, with Japan (6th) and Hong Kong SAR (11th) also in the top 20. In Latin America, Chile (30th) is the highest ranked country, followed by Panama (53rd) Costa Rica (56th) and Brazil.

Several countries from the Middle East and North Africa region occupy the upper half of the rankings, led by Qatar (17th), Saudi Arabia (21st), Israel (24th), United Arab Emirates (25th), Tunisia (32nd), Kuwait (35th) and Bahrain (37th), with most Gulf States continuing their upward trend of recent years.

In sub-Saharan Africa, South Africa (54th) and Mauritius (55th) feature in the top half of the rankings, followed by second-tier best regional performers Namibia (74th), Botswana (76th) and Rwanda (80th).

The Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness Index (GCI), developed for the World Economic Forum by Sala-i-Martin and introduced in 2004. The GCI is based on 12 pillars of competitiveness, providing a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development. The pillars are: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.

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Here is how Nepal fared in the twelve pillars of GCI:

>>Pillars: rank (score) -- my comment

Basic requirements: 125 (3.5)

• Institutions: 130 (3.0) -- as expected!
• Infrastructure: 139 (1.8) -- ninth worst/most non-competitive infrastructure in the world!
• Macroeconomic environment: 89 (4.4)-- not bad!
• Health and primary education: 109 (4.8)-- as expected!

Efficiency enhancers: 131 (3.1)

• Higher education and training: 131 (2.6)-- serious shortage of skilled manpower
• Goods market efficiency: 131 (2.6)
• Labor market efficiency: 126 (3.6)-- militant trade unions and youth wings still rule the industrial sector!
• Financial market development: 106 (3.6)-- it is growing but very recklessly; too much concentration in real estate and construction sectors
• Technological readiness: 134 (2.5)-- virtually, no technology ready to be deployed for productivity gains!
• Market size: 100 (2.9)-- market size is not bad; purchasing power is pretty high due to high remittance inflows

Innovation and sophistication factors: 133 (2.7)

• Business sophistication: 132 (3.0)-- can't expect business sophistication in the Nepalese market!
• Innovation: 137 (2.3)-- lack of quality manpower!

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Though Nepal is still a factor-driven economy, a typical feature among developing countries, its macroeconomic management and health and primary education standards are higher than its peers.

Government instability/coups, corruption, and policy instability are identified as the three most problematic factors for doing business in Nepal. These are followed by inefficient government bureaucracy, inadequate supply of infrastructure, restrictive labor regulations, and poor work ethic in national labor force. Interestingly, tax regulations and tax rates are the least problematic factors for doing business in Nepal. It means that the biggest constraint is political.

For last year’s report, see this blog post.

Exports and wage inequality

Moser and Urban argue that exports contributes to wage inequality among workers with different levels of skill, but diminishes wage gaps in manufacturing sector between men and women. This result cannot be generalized as their study is based on data from Germany only.

We find that there is a significant export wage premium for workers in the two highest skill categories and evidence of an export wage discount for lower-skilled workers. The export wage premium for higher-skilled workers combined with the wage discount for lower-skilled workers implies an increase in manufacturing wage disparities with an expansion in the number of plants that export, or with an increase in the share of exports relative to total manufacturing output.

While the use of four constructed skill categories simplifies the presentation of our results, we find very similar results when estimating the export wage premium or discount across 340 occupations defined in the data set.

[...]Another set of results presented in our research shows that an increase in exports diminishes manufacturing wage gaps due to gender or nationality. Higher-skilled women, who are paid less than men with comparable personal characteristics in comparable plants, enjoy a higher export wage premium than men, and there is no evidence of an export wage discount for medium-skilled and lower-skilled women. Likewise, higher-skilled manufacturing workers who are not German citizens enjoy an export wage premium and there is not a significant export wage discount for these workers either.

Our research shows that the links between trade and inequality are subtle. An increase in the average export share of the German economy raises wage inequality along

the dimension of skill. But this same shift in the economic profile of the economy lowers wage inequality along the dimensions of gender and citizenship. These effects point out the potentially complex role of increasing globalisation on wage inequality.

Measuring GDP in resource rich, income poor countries

Hamilton and Ley suggest a new way of measuring economic progress for countries with significant exhaustible natural resources and important foreign investor presence: adjusted net national income (aNNI). It involves a charge to net national income for the depletion of natural resources. GDP itself does not account for the depletion of natural assets.

So,

• Net national income (NNI) = GDP + [Net foreign factor income] - [Depreciation of fixed capital]
• Adjusted net national income (aNNI) = NNI - [Depreciation of natural capital]

For most of the African countries, aNNI shows that they have been consuming more than their incomes since 1990, particularly financed by resource boom. They argue that if this holds then over-confidence in growth on resource-rich countries should be revisited. These countries should manage mineral wealth in such a way that its exploitation aids sustainable growth. Some of the policies could include “macroeconomic policies that encourage savings, fiscal policies that capture resource rents, public investment programs that put resource revenues to their best use (including investment in human capital), and resource policies that lead to dynamically efficient rates of extraction.” The authors warn that failure to do so would increase the risks of “resource curse” which is plaguing resource rich African countries.