The 35 reference contexts in paper Jonathan Isham, Michael Woolcock, Lant Pritchett, Gwen Busby (2003) “The Varieties of Resource Experience: How Natural Resource Export Structures Affect the Political Economy of Economic Growth” / RePEc:mdl:mdlpap:0308

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    Michael Woolcock Middlebury College World Bank and Harvard University Lant Pritchett Gwen Busby Harvard University Cornell University This draft: April 30, 2003 Abstract: Many oil, mineral, and plantation crop-based economies experienced a substantial deceleration of growth since the commodity boom and bust of the 1970s and early 1980s.
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    Rodrik (1999)
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    has demonstrated that the magnitude of a country’s growth deceleration since the 1970s is a function of both the magnitude of the shocks and a country’s “social capability” for adapting to shocks.
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    have promised that oil revenues will go to schools, hospitals and roads, no formal plans are in the offing; meanwhile, neighboring Caspian Sea nations are despotically ruled, ethnically divided, and weakened by corruption—problems some fear will be made worse by oil4. The controversy over the construction of the pipeline in Chad 1 Cited in
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    Ross (2001
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    : 329, fn. 6) 2 Karl (1997: 13) 3 Bates (2001: 107, fn. 1) 4 According to the chief UN representative in Azerbaijan, “This wealth ... will create a lot of problems. It will increase the already substantial gap between the rich and poor, and eventually it will affect political stability” (Kinzer 1999). demonstrates that even in an extraordinarily poor country, not all believe that ad
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    will go to schools, hospitals and roads, no formal plans are in the offing; meanwhile, neighboring Caspian Sea nations are despotically ruled, ethnically divided, and weakened by corruption—problems some fear will be made worse by oil4. The controversy over the construction of the pipeline in Chad 1 Cited in Ross (2001: 329, fn. 6) 2
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    Karl (1997
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    : 13) 3 Bates (2001: 107, fn. 1) 4 According to the chief UN representative in Azerbaijan, “This wealth ... will create a lot of problems. It will increase the already substantial gap between the rich and poor, and eventually it will affect political stability” (Kinzer 1999). demonstrates that even in an extraordinarily poor country, not all believe that additional wealth pouring in
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    , hospitals and roads, no formal plans are in the offing; meanwhile, neighboring Caspian Sea nations are despotically ruled, ethnically divided, and weakened by corruption—problems some fear will be made worse by oil4. The controversy over the construction of the pipeline in Chad 1 Cited in Ross (2001: 329, fn. 6) 2 Karl (1997: 13) 3
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    Bates (2001
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    : 107, fn. 1) 4 According to the chief UN representative in Azerbaijan, “This wealth ... will create a lot of problems. It will increase the already substantial gap between the rich and poor, and eventually it will affect political stability” (Kinzer 1999). demonstrates that even in an extraordinarily poor country, not all believe that additional wealth pouring into government coffer
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    of the pipeline in Chad 1 Cited in Ross (2001: 329, fn. 6) 2 Karl (1997: 13) 3 Bates (2001: 107, fn. 1) 4 According to the chief UN representative in Azerbaijan, “This wealth ... will create a lot of problems. It will increase the already substantial gap between the rich and poor, and eventually it will affect political stability”
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    (Kinzer 1999).
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    demonstrates that even in an extraordinarily poor country, not all believe that additional wealth pouring into government coffers will lead to better times. Both resource scarcity and abundance have been cited as a primary cause of civil war.
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    eventually it will affect political stability” (Kinzer 1999). demonstrates that even in an extraordinarily poor country, not all believe that additional wealth pouring into government coffers will lead to better times. Both resource scarcity and abundance have been cited as a primary cause of civil war. Some have argued that land scarcity is behind the Rwandan conflicts (e.g.,
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    Klare, 2001),
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    but resource-rich countries have not escaped civil strife. Angola had been embroiled in conflict since the mid 1970s, and the “problem” there is not scarce land, but rather abundant sources of oil and some of the world’s best diamonds (Campbell, 2002).
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    Some have argued that land scarcity is behind the Rwandan conflicts (e.g., Klare, 2001), but resource-rich countries have not escaped civil strife. Angola had been embroiled in conflict since the mid 1970s, and the “problem” there is not scarce land, but rather abundant sources of oil and some of the world’s best diamonds
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    (Campbell, 2002).
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    Just as revenues from diamonds, timber, coffee and gold in the eastern half strengthened (then) Zaire’s elite, revenues from Coltan are now strengthening the rebel Rally for Congolese Democracy5. Rebels in Sierra Leone are financed from diamond mines, and are perhaps fighting over nothing else except for control over them.
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    only is institutional capacity to handle shocks a determinant of economic 5 Columbine-tantalite (Col-tan) has recently been declared ‘the wonder mineral of the moment’: when processed, it is vital for the manufacture of capacitors and other high tech products. 6 The most recent literature on the effects of natural resources on growth includes
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    Auty 1995;
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    2001; Leamer et al 1999; Leite and Weidmann 1999; Ross 1999, 2001; Sachs and Warner 1995 [2000], 1999; Stijns 2001; Nugent and Robinson 2001; Gylfason and Zoega 2002, Lederman and Maloney 2002. growth since the “commodity shocks” of the 1970s and 1980s (Rodrik 1999), but that institutional capacity itself varies across economies with different sources of export revenue, and that it is
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    capacity to handle shocks a determinant of economic 5 Columbine-tantalite (Col-tan) has recently been declared ‘the wonder mineral of the moment’: when processed, it is vital for the manufacture of capacitors and other high tech products. 6 The most recent literature on the effects of natural resources on growth includes Auty 1995; 2001;
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    Leamer et al 1999;
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    Leite and Weidmann 1999; Ross 1999, 2001; Sachs and Warner 1995 [2000], 1999; Stijns 2001; Nugent and Robinson 2001; Gylfason and Zoega 2002, Lederman and Maloney 2002. growth since the “commodity shocks” of the 1970s and 1980s (Rodrik 1999), but that institutional capacity itself varies across economies with different sources of export revenue, and that it is these export structures t
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    of economic 5 Columbine-tantalite (Col-tan) has recently been declared ‘the wonder mineral of the moment’: when processed, it is vital for the manufacture of capacitors and other high tech products. 6 The most recent literature on the effects of natural resources on growth includes Auty 1995; 2001; Leamer et al 1999; Leite and Weidmann 1999;
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    Ross 1999, 2001;
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    Sachs and Warner 1995 [2000], 1999; Stijns 2001; Nugent and Robinson 2001; Gylfason and Zoega 2002, Lederman and Maloney 2002. growth since the “commodity shocks” of the 1970s and 1980s (Rodrik 1999), but that institutional capacity itself varies across economies with different sources of export revenue, and that it is these export structures that influences socioeconomic and political
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    5 Columbine-tantalite (Col-tan) has recently been declared ‘the wonder mineral of the moment’: when processed, it is vital for the manufacture of capacitors and other high tech products. 6 The most recent literature on the effects of natural resources on growth includes Auty 1995; 2001; Leamer et al 1999; Leite and Weidmann 1999; Ross 1999, 2001; Sachs and Warner 1995 [2000], 1999;
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    Stijns 2001;
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    Nugent and Robinson 2001; Gylfason and Zoega 2002, Lederman and Maloney 2002. growth since the “commodity shocks” of the 1970s and 1980s (Rodrik 1999), but that institutional capacity itself varies across economies with different sources of export revenue, and that it is these export structures that influences socioeconomic and political institutions.
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    and other high tech products. 6 The most recent literature on the effects of natural resources on growth includes Auty 1995; 2001; Leamer et al 1999; Leite and Weidmann 1999; Ross 1999, 2001; Sachs and Warner 1995 [2000], 1999; Stijns 2001; Nugent and Robinson 2001; Gylfason and Zoega 2002, Lederman and Maloney 2002. growth since the “commodity shocks” of the 1970s and 1980s
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    (Rodrik 1999),
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    but that institutional capacity itself varies across economies with different sources of export revenue, and that it is these export structures that influences socioeconomic and political institutions.
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    All of these are consistent with a negative link between particular types of resources and government capacity. Rentier States. Political scientists generally—and area specialists in particular—argue that certain natural resources undermine development through what they term “rentier effects”
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    (Ross 2001)
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    7 . When revenues can be easily extracted from a few sources that are easily 7 Some historians of the early modern state (e.g., Chirot, 1998) argue that the increasing cost of modern armies led to greater demands on the state’s ability to raise revenues, which led to one of several outcomes.
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    By the same token, citizens have less incentive to create mechanisms of accountability and develop the deep “civil society” and horizontal social associations that many feel are the “preconditions” of democracy
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    (Lipset (1959), Moore (1966), Putnam (1993), and
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    Inglehart (1997)). Second, with the “exogenous” revenues, the government can mollify dissent through a variety of mechanisms (buying off critics, providing the population with benefits, infrastructure projects, patronage or outright graft).
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    Second, with the “exogenous” revenues, the government can mollify dissent through a variety of mechanisms (buying off critics, providing the population with benefits, infrastructure projects, patronage or outright graft). Third, the state has resources to pursue direct repression and violence against dissenters. Delayed Modernization. For influential scholars such as Barrington
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    Moore (1966),
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    the story of wealth, power, and political and economic transformation begins with some smallish group of elites owning the most valuable resources (usually land); from this land they extract a surplus from the peasants in some way or another (serfdom, slavery, feudal exactions), but then economic circumstances change so that industrialization is necessary.
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    inability to mobilize revenues because of conflicts between sovereign and nobles meant that eventually one got gobbled (classic cases: Poland, Hungary). 8 Acemoglu and Robinson (1999) model precisely these trade-off by the elites. lead to representative democracy, fascism, corporatism, Marxist dictatorships, or oligarchies
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    (Moore 1966).
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    Recently, Acemoglu, Johnson, and Robinson (2001) have used similar arguments in which the mortality of settlers plays a crucial role in determining the structure of economic production and hence institutions.
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    (and beyond) and in the process created functioning democratic polities (although via very different paths—the US/UK path to democracy is very different from the French, Prussian/German, or Japanese one). Indeed, viewed over the span of the last hundred years, it is only quite recently that resource-poor countries have become systematically wealthier than resource-rich countries (see
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    Auty 2001
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    : 5). Political scientists have long argued that states dependent on natural resources tend to thwart secular modernization pressures—e.g. higher levels of urbanization, education, and occupational specialization—because their budget revenues are derived from a small work force that deploys sophisticated technical skills that can only be acquired abroad (e.g., oil is largely extracted
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    Concomitantly, citizens are therefore less able to effectively and peacefully voice their collective interests, preferences, and grievances (even in nominally democratic countries such as Zimbabwe and Jamaica). In short, resource abundance simultaneously “strengthens states” and “weakens societies”, and thus yields—or at least perpetuates—low levels of development (cf.
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    Migdal 1988).
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    9 Entrenched Inequality. The “entrenched inequality” effect is that the export composition affects economic and political outcomes by affecting the social structure. Economic historians Engerman and Sokoloff (1997, 2000) argue that the diverging growth trajectories of South and North America over the last two hundred years can be explained by reference to the types of crops grown, the exte
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    Migdal 1988).9 Entrenched Inequality. The “entrenched inequality” effect is that the export composition affects economic and political outcomes by affecting the social structure. Economic historians Engerman and
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    Sokoloff (1997, 2000)
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    argue that the diverging growth trajectories of South and North America over the last two hundred years can be explained by reference to the types of crops grown, the extent of property rights regimes enacted to secure their sale, and the timing and nature of colonization.
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    warmer southern states in North America, with their plantation crops (tobacco) and enduring commitment to slavery, were a microcosm of the larger contrast between North and South America. 11 See Tornell and Lane (1999) for a model of how special interests can dampen economic growth. On the institutional side, their argument is very much in the spirit of this paper: they also note (echoing
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    Barro 1996)
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    that one possible explanation for the distributive struggle in many countries is the attempt to appropriate rents generated by natural resource endowments. 12 Consider the contrast between Argentina and United States.
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    The second method was to compute four indices of ‘net export shares’ that mirror our four classifications of the types of exports: (1) manufacturing; (2) diffuse, (3) point source, and (4) coffee and cocoa. To construct these four indices, the World Trade Analyzer from 1980 was used to aggregate SITC codes at the two-digit level into our four export categories, following the approach of
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    Leamer et al. (1999). To
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    calculate the ‘net export share’ for each sub-category, net exports (X-M) of sub-category i is divided by the sum of the absolute value of net exports across all sub-categories (following the procedure in Leamer et al.,1999).
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    To calculate the ‘net export share’ for each sub-category, net exports (X-M) of sub-category i is divided by the sum of the absolute value of net exports across all sub-categories (following the procedure in
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    Leamer et al.,1999).
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    The four indices are then calculated as the sum of the net export shares for each sub-category in each of the four categories. By construction, these indices have a range of –1 to 1, with a higher number indicating a greater relative reliance on the corresponding category for export earnings.
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    There is no question that the manufactures exporters appear to 15 These “institutional” variables that have been used recently in a set of papers on the institutional determinants of economic growth (Knack and Keefer 1995;
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    Rodrik 1999a, Kaufmann et al. 2000;
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    Dollar 2000, Ritzen, Easterly and Woolcock 2000, and Easterly 2001). Growth rate data for the period 1957-1997 was compiled have higher institutional quality—the indicator is lower among the resource-exporter countries in all cases and for six of these this difference is statistically significant 16 .
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    There is no question that the manufactures exporters appear to 15 These “institutional” variables that have been used recently in a set of papers on the institutional determinants of economic growth (Knack and Keefer 1995; Rodrik 1999a, Kaufmann et al. 2000; Dollar 2000, Ritzen, Easterly and
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    Woolcock 2000, and Easterly 2001).
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    Growth rate data for the period 1957-1997 was compiled have higher institutional quality—the indicator is lower among the resource-exporter countries in all cases and for six of these this difference is statistically significant 16 .
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    Regulatory burden 0.40 -0.17 -0.14 -0.19 -0.11 ICRGLaw and Order Tradition 3.81 2.85 * 2.80 2.89 2.81 Quality of the Bureaucracy 3.71 2.59 ** 2.52 2.63 2.55 Freedom Political rights 3.98 3.28 3.50 3.26 3.12 House Civil Liberties 3.56 3.35 3.49 3.33 3.24 CPIA Property rights and rulebased governance 3.60 3.37 3.53 3.28 3.42 Notes: The sources for these institutional variables are
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    Kaufmann et al. (2000)
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    (for KKZ), Easterly (2000) (for ICRG and Freedom House) and World Bank (2002) (for CPIA). * significant at 5% level and ** significant at 1% level for Mann-Whitney test of similar distributions in resource-poor and resource-exporter countries.
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    0.14 -0.19 -0.11 ICRGLaw and Order Tradition 3.81 2.85 * 2.80 2.89 2.81 Quality of the Bureaucracy 3.71 2.59 ** 2.52 2.63 2.55 Freedom Political rights 3.98 3.28 3.50 3.26 3.12 House Civil Liberties 3.56 3.35 3.49 3.33 3.24 CPIA Property rights and rulebased governance 3.60 3.37 3.53 3.28 3.42 Notes: The sources for these institutional variables are Kaufmann et al. (2000) (for KKZ),
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    Easterly (2000)
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    (for ICRG and Freedom House) and World Bank (2002) (for CPIA). * significant at 5% level and ** significant at 1% level for Mann-Whitney test of similar distributions in resource-poor and resource-exporter countries. from the Penn Worl
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    2.85 * 2.80 2.89 2.81 Quality of the Bureaucracy 3.71 2.59 ** 2.52 2.63 2.55 Freedom Political rights 3.98 3.28 3.50 3.26 3.12 House Civil Liberties 3.56 3.35 3.49 3.33 3.24 CPIA Property rights and rulebased governance 3.60 3.37 3.53 3.28 3.42 Notes: The sources for these institutional variables are Kaufmann et al. (2000) (for KKZ), Easterly (2000) (for ICRG and Freedom House) and
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    World Bank (2002)
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    (for CPIA). * significant at 5% level and ** significant at 1% level for Mann-Whitney test of similar distributions in resource-poor and resource-exporter countries. from the Penn World Tables and the World Development Indicators (Worl
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    ) (for CPIA). * significant at 5% level and ** significant at 1% level for Mann-Whitney test of similar distributions in resource-poor and resource-exporter countries. from the Penn World Tables and the World Development Indicators
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    (World Bank 1999).
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    Measures of social and political data were adapted from Kaufmann et al. (2002)15, Easterly (2000), and World Bank (2002). 16 From the KKZ data, ‘rule of law’, ‘political instability’, ‘government effectiveness’, and ‘control of corruption’; from ICRG, ‘law and order tradition’ and ‘quality of the bureaucracy.
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    Mann-Whitney test of similar distributions in resource-poor and resource-exporter countries. from the Penn World Tables and the World Development Indicators (World Bank 1999). Measures of social and political data were adapted from
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    Kaufmann et al. (2002)
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    15, Easterly (2000), and World Bank (2002). 16 From the KKZ data, ‘rule of law’, ‘political instability’, ‘government effectiveness’, and ‘control of corruption’; from ICRG, ‘law and order tradition’ and ‘quality of the bureaucracy.
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    distributions in resource-poor and resource-exporter countries. from the Penn World Tables and the World Development Indicators (World Bank 1999). Measures of social and political data were adapted from Kaufmann et al. (2002)15,
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    Easterly (2000), and World Bank (2002).
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    16 From the KKZ data, ‘rule of law’, ‘political instability’, ‘government effectiveness’, and ‘control of corruption’; from ICRG, ‘law and order tradition’ and ‘quality of the bureaucracy.’ IV.
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    variables are endogenously determined by export composition as well as the other correlates of institutional quality that have been proposed in the literature—e.g., a country’s share of English and European language speakers, latitude, and ‘predicted trade share’ (Hall and Jones (1999), Kaufmann, Kraay, Zoboda (2000) and ethnic fractionalization (as used in Ritzen, Easterly, and
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    Woolcock 2000,
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    Alesina, et al. 2002). Growth is then determined by institutions (and the other usual suspects from the growth regression literature). We estimate an equation for each of six indicators of institutional quality measured in the 1990s (‘rule of law’, ‘political instability and violence’, ‘government effectiveness’, ‘control of corruption’, ‘regulatory framework’, and ‘property rights and rul
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    guilds and choral societies, it is hard to imagine how a policymaker interested in accelerating growth can change what we have identified as one possible underlying cause of poor performance—a country’s natural resource endowment makes for poor institutions. We admit: it is hard to get beyond this first glance. But here’s why we think it is important to shed light on these results.
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    World Bank (1998)
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    illustrated the power of institutions in development assistance, and what donors should (and most importantly, should not) do in the face of varied institutional performance among potential aid recipients.
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    World Bank (1998) illustrated the power of institutions in development assistance, and what donors should (and most importantly, should not) do in the face of varied institutional performance among potential aid recipients. Our results suggest how entrenched—and ‘environmentally determined’—poor institutions can be (cf.
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    Wade (1988),
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    at micro level). So these results, in a certain sense, further raise cautions about casual attempts at institutional reform. Poor institutions are deeply rooted. Where others (e.g., Rodrik 1999) have shown how important institutional quality and social inclusion are to managing growth generally and growth volatility in particular, these results push the chain of causation back further one st
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    Our results suggest how entrenched—and ‘environmentally determined’—poor institutions can be (cf. Wade (1988), at micro level). So these results, in a certain sense, further raise cautions about casual attempts at institutional reform. Poor institutions are deeply rooted. Where others (e.g.,
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    Rodrik 1999)
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    have shown how important institutional quality and social inclusion are to managing growth generally and growth volatility in particular, these results push the chain of causation back further one step further, showing that, pace Karl (1997: 13), “the revenues a state collects, how it collects them, and the uses to which it puts them” does indeed “define its nature”.
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    Where others (e.g., Rodrik 1999) have shown how important institutional quality and social inclusion are to managing growth generally and growth volatility in particular, these results push the chain of causation back further one step further, showing that, pace
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    Karl (1997
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    : 13), “the revenues a state collects, how it collects them, and the uses to which it puts them” does indeed “define its nature”. Institutions surely matter a lot, but types of natural resource endowments and the corresponding export structures to which they give rise (rather than “geography”), play a large role in shaping what kinds of institutional forms exist and persist.
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