Neither Curse nor
Destiny: NR’s in LA
Development
Fedesarrollo 2013
Bill Maloney
World Bank Development Economics Research Group
And Universidad de los Andes
Based on:
 Does What you Export Matter? (2012, forthcoming, Los Andes)
 Engineers, Innovative Capacity and Development in the Americas
(2012)
 In Search of the Elusive Resource Curse (2009)
 Natural Resources: Neither Curse nor Destiny (2007)
 Missed Opportunities: Innovation and Natural Resources in Latin
America (2007)
www.worldbank.org/wmaloney
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
The missing resource curse: no negative
growth effect on average
 Most cited resource curse findings fragile (eg. Sachs and Warner)
 Lederman & Maloney (2007, 2008), Alexeev and Conrad (2009)
 Subsoil mineral wealth endowments robustly correlated with growth:
 Davis (1995), Sala-i-Martin et al. (2004), Stijns (2005), Brunnschweiler (2008,
2009).
 Higher commodity prices raise growth
 Deaton and Miller (1995), Raddatz (2007) for poor countries.
NRs: Not cursed.. but they do have “issues”
1. Governance, 2. Concentration, 3. Productivity/dynamism
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
NR Issues: Low productivity/growth
Smith (1776), Matsuyama (1996), Sachs et. al (1995 to
2001)


Rationale for Dutch disease concern (aid too)
 Rich Country Goods better
 Hausmann, Hwang, Rodrik 2007, Lall 2007
 Country should produce the highest productivity good within its CA
 PRODY, EXPY correlated with higher growth.
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
NRs have very mixed PRODYs..
35000
30000
25000
20000
15000
10000
5000
0
PRODYs (with +/- 1 SD*)
Low productivity/ ME
 Demand side
 Rodriguez-Clare critique
 Are rents higher where rich countries already are?
 If easy to move into these goods, then barriers to entry/rents low;
ditto MNCs permanence
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
But the Key- to understand the
heterogeneity of experience
10
Greec e
K orea, R
Log GDP per capita 1990
Leamer Measure: Net Exports of
NR/Worker
U nited S
S w itz erl
France
H ong KJapan
onU
Germany
nited K
A us tria
Italy
Israel
S pain
C yprus
9
P oland
V enezuel
Mex
ic o
Malay sia
S yrian A A rgentin
U ruguay
C hile
B razil
Iran,
Is Gabon
C osAta
outh
f Ri
Thailand
CS
olombia
A lgeria
E cuador
C ongo,
D
Jamaica
Guatemal
P araguay
P eru
D ominica
Indones
B oliviai
Mauritiu
H ungary
Turk ey
Fiji
Jordan
Tunisia
P anama
Moroc co
alv a
E gy pt, AESl riSLank
P hilippi
8
C ape V er
anglade
P ak isB
tan
S enegalIndia
7
B urkina
H onduras
P
Capua
ote d'N
I e
C ameroon
Zimbabw e
N igeria
K enya
Guy ana
Ghana
S ierra L
R w anda
Mauritan
Guinea
Zambia
Madagasc
Togo
C
omoros
ganda
BU
urundi
Malaw i
N icaragu
C hina
B enin
Gambia,
Moz ambiq
Guinea-B
C anada
S w eden
N orw ay
A
us trali
Finland
Iceland
D enmark
N etherla
N ew Zeal
Ireland
S udan
Mali
C had
6
-11.5041
Resource Scarce
Maloney 2007
11.7949
Log Natural Resources (Leamer)
Resource Abundant
Historically, natural resources have been a
dynamic source of growth, but not in LA
 Agriculture
 Productivity growth is higher in agriculture than manufactures
(Bernard and Jones 1996, Martin and Mitra 2001)
 But not in LA (or LDCs more generally)
 Forestry
 Dynamic in Finland, Sweden
 Moribund in Brazil, Chile until late 20th century
 Mining
 Foundation for sustained prosperity in Australia, Canada, US
 Latin America: “mineral underachievers” (Wright 2007)
 True enclave economies
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
Ancient History: Mining
Same good, different outcomes
 Mexico, Chile in 1800 were dominant global powers in Mining
but nearly dead by 1900
 US experience with exactly the same goods exactly the opposite.
 US dominates mining in Mexico, Chile-Able to employ and perfect
the Bessemer process, leverage human capital accumulation
 Wright (1987) - US Copper industry-an example of national
learning as a network effect.
 Not product mix-LAC unprepared for the 2nd industrial
revolution (See Does what you export matter?- Lederman and
Maloney 2012)
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
Innovative/Entrepreneurial
capacity the driver?
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
Density of Engineers~ 1900
Quintil Bajo
Quintil 2
Quintil 3
Quintil 4
Quintil Alto
Source: Maloney and Valencia (2013)
Any formalizations?
 Aghion, Howitt, Mayer (2005), Howitt and Mayer-Foulkes
(2005).
 Invention, Adoption Stagnation Eqs
 Depends on “frontier adjusted human capital” (relative innovative
capacity)
 Low HC- can slip into a stagnation eq. when tech advance
occurs.
 LAC Mining-slipped into stagnation eq.
 Antioquia-actually maintained/increased HC
 Asia: struggle to reach increase HC and better eq.
 Huge literature on building firm capacity, ability to learn.
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
Hausmann: NRs as isolated trees?
 Theoretically, does it matter if monkey climbing one very tall tree vs
jumping among trees? Diversification?
 Demand side?
 Rodriguez (again): being a tree in a dense area is like a ME
 If easy to jump from one tree to others, then easy to jump to..
 Quality ladders: better to jump to goods that don’t exist yet
 The past as predictor?
 With death of distance, past NR monkey jumps may not happen-Steam Engine, Saab,
Nokia
 What will new adjacent products be?
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
Hot High Tech products on RT 128why not Chile?
 Frankenfish
 Splice in growth gene from Ocean Pout (eel)
 Salmon grows twice as fast as normal
 AquaBounty Maynard, MA
Better trees, or better monkeys?
Scandanavia’s Forestry Cluster
Nokia: Site of an early
pulp mill in Finland
Learn how to learn
4/8/2015
Managing risk: lessons from unit
values
Quality measure by price/unit value




Huge variance within products (Schott 2004)
Average quality rises with development
Low possibilities for UV growth in NR (Hwang)
 Yes, there is convergence
 But are quality ladders shorter?
 Yes for most, but not for metals
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
NRs do seem to show a lower riskreturn combination
Figure 4: Unit Values: Drift and Standard Deviation, Country Fixed Effects, HS-1 1990-2001
0.18
machinelec (84-85)
0.16
0.14
Drift (Product Dummies)
misc (90-97)
0.12
transp (86-89)
0.1
leatherprods (41-43)
0.08
stoneglass (68-71)
woodprods (44-49)
foothead (64-67) minerals (25-27)
animals (01-05)
0.06
vegetables (06-15)
plasticrubber (39-40)
textiles (50-63)
chemallied (28-38)
0.04
metals (72-83)
foods (16-24)
0.02
-0.2
-0.1
0
0.1
Standard Deviation (Product Dummies)
Krishna and Maloney 2009
0.2
0.3
But again… the how matters
Figure 4: Quality Growth by Region 1990-2001 (Product Fixed Effects
Included)
0.004
Median Quality Growth
0.002
0
-0.002
-0.004
OECD
(highincome)
LAC
MENA
EASIAP
(highincome)
SASIA
-0.006
-0.008
-0.01
-0.012
-0.014
Region
Krishna and Maloney (2009)
SSAFRICA
EASIAP
(low income)
EUROPE
(nonOECD)
CASIA
NR issues: Harnessing their dynamic
potential
 How get the most out of extractive industries themselves?
 How leverage NRs to generate new industries-
diversification?
 Choice:
 Enclave with limited development effects or
 Provide foundation for economic dynamism.
 Critical element:
 development of national learning/ innovative capacity
 Management of risks of entering new sectors/techniques
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
Innovation/Learning capacity
seems key to lifting LAC’s game
 The variance in development impact around any particular
production basket is large
 The focus on particular goods (trees/forests) diverts
attention from more important issue:
 LAC needs better Monkeys.
 Asia has been training (networks of) Monkeys for decades.
China struggling now
 Middle income trap? Countries exploit simple rents (NR,
cheap labor) and then can’t make the transition to adopting
or invention eqs.?
Introduction to Innovation Policy • June 14-18, 2010 – Washington, D.C.
Fin