Economics

Study Notes

Paul Collier and Development Traps

Level:
A Level
Board:
AQA, Edexcel, OCR, IB

Professor Paul Collier finds that the living standards of the world's bottom billion have stagnated over the past forty to fifty years.

He identifies four “development traps” - they are conflict, reliance on natural resources, being landlocked with bad neighbours, and bad governance.

Land locked economies face particular challenges to integrate in global trade – without good infrastructure and efficient logistics businesses it can be difficult, costly and slow to get products to the countries of trade partners

Some landlocked countries have been doing well especially when they achieve regional economic integration with other land-locked nations

Overcoming the Natural Resource Trap

This is a crucial issue for many countries who are blessed with a strong endowment of natural resources.

The natural resource trap or resource curse can come about for a variety of reasons:

  • Risk of political conflict and corruption / conflict / land grabs
  • Vulnerability to changes in world prices which causes high levels of macro volatility
  • Danger of over-rapid extraction of finite and renewable resources
  • Rising prices can lead to a currency appreciation – damaging domestic industries

Professor Paul Collier has argued:

“Although large deposits of key resources such as oil would usually be considered a blessing for the development prospects of a country, it often turns out to be a ‘resource curse’”

Which strategies might help to overcome these problems?

  1. Better government – including more transparency & accountability to tax payers
  2. Stabilisation Fund / Sovereign Wealth Fund – e.g. to fund human capital and critical infrastructure
  3. Higher taxes of natural resource profits (extracting resource rents)
  4. Diversification – investment in processing and manufacturing – giving higher value added

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