Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Explaining Divergent Economic Trajectories in Resource Rich Countries: Indonesia and Nigeria Compared Introduction • Although the evidence suggests that resource rich countries have in general performed less well than resource poor countries in development terms, not all resource rich countries have performed poorly. How can we explain this? • This lecture examines this question, focusing on: – the issue of economic development – the cases of Nigeria and Indonesia • Indonesia and Nigeria provide good cases for examining this question. • First, the two countries have many similarities: – – – – – post-colonial states large populations heavily oil dependent ethnically diverse, many languages experience of authoritarian/military government Fuel Exports (% of Merchandise Exports) Selected Years Nigeria Indonesia 1973 83 50 1983 94 76 1996 95 25 2003 97 25 • Second, they have had very different economic records: – Indonesia grew very strongly between late 1960s and late 1990s while Nigerian economy grew very slowly (see diagram). – Indonesia made enormous in-roads into poverty while Nigeria made very few (see diagram). Economic Growth Annual Growth Rate (%) 19 61 19 65 19 69 19 73 19 77 19 81 19 85 19 89 19 93 19 97 20 01 20 05 30 25 20 15 10 5 0 -5 -10 -15 -20 Year Source: World Bank's World Development Indicators Indonesia Nigeria Human Development Index 0.8 0.7 0.6 0.5 Indonesia 0.4 Nigeria 0.3 0.2 0.1 0 1975 1980 1985 1990 1995 2000 Source: UN Human Development Report, various years 2004 Explaining Nigeria’s and Indonesia’s Divergent Economic Trajectories • The proximate cause of Indonesia’s relative economic success vis-à-vis Nigeria is fairly clear. – Indonesia avoided the Dutch disease while Nigeria did not – More specifically, Indonesia managed to diversify away from oil and gas to manufacturing and agriculture while Nigeria did not Manufacturing Value Added Constant 2000 $US 70 50 40 Indonesia 30 Nigeria 20 10 0 19 60 19 64 19 68 19 72 19 76 19 80 19 84 19 88 19 92 19 96 20 00 20 04 $US billions 60 Year Source: World Bank's World Development Indicators 35 30 25 20 15 10 5 0 Nigeria Indonesia 19 60 19 64 19 68 19 72 19 76 19 80 19 84 19 88 19 92 19 96 20 00 Year Manufacturing Value Added As a Percentage of GDP Percent Source: World Bank's World Development Indicators Nigeria and Indonesia: Agricultural Value Added, Constant 2000 US dollars 19 60 19 64 19 68 19 72 19 76 19 80 19 84 19 88 19 92 19 96 20 00 20 04 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 Source: World Bank's World Development Indicators Nigeria Indonesia 70 60 50 40 30 20 10 0 Indonesia Nigeria 19 60 19 64 19 68 19 72 19 76 19 80 19 84 19 88 19 92 19 96 20 00 20 04 Percent Agricultural Value Added as a Percentage of GDP Year Source: World Bank's World Development Indicators • The key question, then, is: why did Indonesia manage to avoid the Dutch disease and Nigeria not do so? • Eifert et al (2002): – Indonesia and Nigeria had different political regimes: reformist autocracy vs. predatory autocracy. – But this approach begs the question of why these different regimes emerged in the first place. • Bevan et al (1999) have emphasised differences in ‘initial conditions’ and the ‘happenstance of events’ – Initial conditions: • Indonesia more vulnerable to fluctuations in world food prices lead to greater concern with agricultural development • Indonesian military’s ‘dual function’ greater government concern with reducing poverty • Indonesia’s commercial elite vulnerable politically, while Nigeria’s not greater willingness to liberalise – happenstance of events: • President Sukarno’s vision for social cohesion greater expectations vis-à-vis poverty reduction in Indonesia than Nigeria • hyperinflation in Indonesia in the mid-1960sgreater concern to reduce inflation in Indonesia than Nigeria • rapid economic growth in East Asiagreater trade and investment opportunities for Indonesia than Nigeria – On the whole, a good approach because it recognises the role of social and historical factors in shaping economic outcomes in resource rich countries. – But some misinterpretations of specifics of the Indonesian case limits the value of their conclusions. My View • Indonesia’s and Nigeria’s differential economic performance reflects three factors: – First, the different social bases of the Indonesian and Nigerian states • The Indonesian state has been defined more in class terms, the Nigerian state more in ethnic terms, reflecting: (i) different colonial administrative histories; (ii) differences in promoting a national language. – These differences have translated into different levels of responsiveness to the interests/demands of local and foreign capitalists • In Indonesia, because the political elite have had a capitalist class identity, they have had an interest in ensuring an environment conducive to the continued reproduction of capital – They have even been willing to sacrifice the interests of local cronies to attract mobile investment • In Nigeria, by contrast, the political elite has been driven by an ethnic rather than a class agenda, making it difficult for them to reward local capital for the reasons pointed to by Bevan et al (1999). – Second, the fact that communism was a very powerful political force at one point in Indonesia’s history • Greater state attention to agricultural development • Third, the different positions of the two countries in the global political economy – Indonesia has been more important in geo-political terms than Nigeria (see figure on aid flows) – Indonesia has been more favourably located in geoeconomic terms 7000.00 6000.00 5000.00 4000.00 3000.00 2000.00 1000.00 0.00 Indonesia Year Source: World Bank's World Development Indicators 2004 2000 1996 1992 1988 1984 1980 1976 1972 1968 1964 Nigeria 1960 $US million Overseas Development Assistance and Official Aid Conclusion • Overcoming the resource curse requires: – fundamental political and social change, specifically the emergence of pro-capitalist political elites – the emergence of a favourable geo-political and geoeconomic environment • Overcoming the resource curse is thus very difficult – no easy technocratic fix – need to focus on promoting long-term processes of change References • Bevan D. et al (1999) Political Economy of Poverty, Equity, and Growth: Nigeria and Indonesia, Oxford: Oxford University Press. • Eifert B. et al (2003) ‘The Political Economy of Fiscal Policy and Economic Management in Oil Exporting Countries’ in J. Davis et al (eds.) Fiscal Policy Formulation and Implementation in Oil-Producing Countries, Washington DC: International Monetary Fund, pp.82-122.