Corruption in natural resource management: Implications for policy makers

Corruption is the main reason why resource-rich countries perform badly in economic terms. Corruption in resource-rich countries takes two main forms, rent-seeking and patronage. Resource rents induce rent-seeking as individuals compete for a share of the rents rather than use their time and skills more productively. And resource revenues induce patronage as governments pay off supporters to stay in power, resulting in reduced accountability and an inferior allocation of public funds. This paper systematically reviews the literature on natural resources and corruption, and outlines the main policy implications for donors and domestic policy makers. A main conclusion is that priority should be given to policies that address rent-seeking and patronage. In other words, policy in resource-rich countries should be less about macro-economic management and more about institutions to prevent rent-seeking and patronage, and about giving the right incentives to players in the resource sector. Moreover, all policies need to take into account their impact on rent-seeking and patronage, and some current policies may actually be harmful in this respect.     

Testing The Pearl Hypothesis: Natural resources and trust

Do natural resources reduce social trust? This paper reviews the literature on natural resources and on trust. The existing theoretical and empirical literature suggests that natural resources can reduce trust through several indirect mechanisms. Notably, studies show that natural resources lead to institutional degradation, corruption, inequality, and civil war, all of which have been associated with reduced trust. In addition, game theoretical work on windfall gains suggests that there may be direct effect of natural resources on trust. This paper tests empirically whether there is a direct effect of natural resources on trust (The Pearl Hypothesis), using cross-country data. The results indicate that no such direct effect exists, but we find a significant effect on trust of intermediate variables affected by natural resources, such as institutions, corruption, inequality and/or civil war. Importantly, the relationship between corruption and trust turns out to be non-linear, indicating that the effect of natural resources on trust depends on the initial corruption level of a country. In highly corrupt societies, institutional improvements that reduce corruption may also undermine trust, which poses difficult challenges for anti-corruption policy.     

‘Natural’ disaster? A retrospect into the causes of the late-2004 typhoon disaster in Eastern Luzon, Philippines

Between 14 November and 4 December 2004, four successive tropical depressions and typhoons lashed the Eastern coast of Luzon in the Philippines. Heavy rainfall triggered massive landslides and devastating flash floods, which brought tremendous damage and killed more than 1600 people. Immediately after the disaster, there was a media and political consensus to incrimate ‘extraordinary’ natural phenomena and widespread deforestation as responsible for the catastrophe. We argue that the tragedy that befell the municipalities of General Nakar, Infanta and Real, among other devastated areas, is enmeshed in a deeper tangle of causal factors that are political, socio-economic and demographic in nature. These factors include unmanaged population growth, difficult access to land and resources, corruption within the government, and power of the elite.     

On the gains of committing to inefficiency: Corruption, deforestation and low land productivity in Latin America

We present a new explanation and empirical evidence showing that rural subsidies to large farmers tend to be associated with low land productivity and excessive deforestation. We develop a lobbying model where wealthy farmers trade bribes or political contributions to government politicians in exchange for subsidies; farmers are able to tilt the terms of the bargaining game with policy makers in their favor by pre-committing to an inefficient choice of semi-fixed inputs. Government proneness to accept political contributions or bribes and its willingness to provide subsidies cause farmers to adopt inefficient modes of production as a mechanism to capture such subsidies. Our predictions are consistent with stylized facts on land use in Latin America, and suggest that subsidy schemes have been counterproductive—distorting and constraining development, and triggering excessive depletion of natural resources. We validate some of the predictions of the model through econometric analyses using a new data set for nine countries in Latin America.     

‘Natural’ disaster? A retrospect into the causes of the late-2004 typhoon disaster in Eastern Luzon,Philippines

Between 14 November and 4 December 2004, four successive tropical depressions and typhoons lashed the Eastern coast of Luzon in the Philippines. Heavy rainfall triggered massive landslides and devastating flash floods, which brought tremendous damage and killed more than 1600 people. Immediately after the disaster, there was a media and political consensus to incrimate ‘extraordinary’ natural phenomena and widespread deforestation as responsible for the catastrophe. We argue that the tragedy that befell the municipalities of General Nakar, Infanta and Real, among other devastated areas, is enmeshed in a deeper tangle of causal factors that are political, socio-economic and demographic in nature. These factors include unmanaged population growth, difficult access to land and resources, corruption within the government, and power of the elite.     

Corruption and forest concessions

We examine how corruption impacts a central government's application of concession policy instruments consisting of royalty rates, concession size, environmentally sensitive logging levels, and enforcement. Harvesters have incentives to illegally log by taking more volume than is allowed, high grading through removal of only the highest valued and best formed trees, and shirking environmentally sensitive logging requirements, all of which reduce public goods produced from native tropical forests. Corruption is introduced through logging inspectors who can be bribed by harvesters to avoid fines associated with illegal logging. Both the theory and a simulation are used to compare policy design under corruption and no corruption.     

Private and public interests in water and energy

Based on empirical evidence from developed, transition and developing countries, the article looks at how the introduction of private operators’ interests into the water supply/sanitation and energy sectors may conflict with public interests in socio‐economic, environmental and political dimensions. Case studies are used to illustrate the dynamics of these interactions, covering phenomena such as unsolicited proposals, misrepresentation and corruption; the exploitation of established positions by taking advantage of asymmetry of information and negotiating capacity in relation to public authorities; and exit from contracts or concessions when acceptable profitability cannot be attained. This experience indicates that the introduction of private companies into these sectors creates the permanent possibility of conflict between private and public interests. The services are too vital both socially and economically to rely on corporate self‐regulation, and countries lack effective capacity to regulate such corporations. The authors conclude that policies relying on corporate activity in these sectors are unnecessarily risky, and that policy development should focus on building strong public sector institutions to provide these services.     

Even Conservation Rules Are Made to Be Broken: Implications for Biodiversity

Despite efforts to enclose and control conservation zones around the world, direct human impacts in conservation areas continue, often resulting from clandestine violations of conservation rules through outright poaching, strategic agricultural encroachment, or noncompliance. Nevertheless, next to nothing is actually known about the spatially and temporally explicit patterns of anthropogenic disturbance resulting from such noncompliance. This article reviews current understandings of ecological disturbance and conservation noncompliance, concluding that differing forms of noncompliance hold differing implications for diversity. The authors suggest that forms of anthropogenic patchy disturbance resulting from violation may maintain, if not enhance, floral diversity. They therefore argue for extended empirical investigation of such activities and call for conservation biologists to work with social scientists to assess this conservation reality by analyzing how and when incomplete enforcement and rule-breaking drive ecological change.     

Enforcing the Clean Water Act: The effect of state-level corruption on compliance

This paper uses an event study to examine the transition from federal to state management of the Clean Water Act (CWA). I find that, overall, the transition from federal to state control has little effect on facility compliance, measured by the violation rate. However, states with a long run prevalence of corruption see a large decrease in the violation rate after authorization relative to states without corruption. Alternative specifications support these findings. I explore whether the response to transition to state control differs across political ideology, GDP and income per capita, government size, environmental preferences and government management performance. None of these alternative state level characteristics seem to account for the observed difference.     

Jordan,minerals extraction and the resource curse

In its role as a competitive producer of phosphate and potash Jordan has not suffered noticeably from the Resource Curse over the past 50 years. However, the effects on its economy because of its geographical proximity to major oil-producing states have been both positive and negative. It is arguable that an oil resource curse has applied to Jordan.