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Conflicts, Security and Development: Capturing potential complementarities from econometric and case study approaches

Richard Auty (Lancaster University)

Thesis  Closer links with case studies can benefit econometric analysis because case studies: 1. Help set tightly focused econometric studies in their broader developmental context  2. Generate insights to suggest sharper proxy variables for econometric analysis

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Growth Collapses Often Precede Strife: What Successful Cases Reveal

Mansoob identifies institutions as key transmission mechanism,

May risk making institutions latest in Easterly’s line of ‘failed’ silver bullets

because analysis of growth collapses and recovery point to stronger rolesfor factors other than institutions. Assumes point linkages adversely affect development and associated

withmines (true) + plantations (dubious) whereas diffuse linkages of peasantcash crop production are beneficial for growth (true), but:

a) If so, SSA countries like Ghana should outstrip Asian countries like Malaysia b) Conversion of diffuse linkages to point linkages appeared sanctioned by interventionist economic policies, notably ISI that became fashionable during 1950s + 1960s.

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Median GDP per capita (constant 1995 US$)resource-rich and resource-poor developing countries

0

200

400

600

800

1000

1200

1960 1965 1970 1975 1980 1985 1990 1995

Resource-rich Resource-Poor

Natural resource endowment and growth collapses

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Growth Collapses 1973-85 of Economies Weakened by Two Decades of Policy-Induced Cumulative Distortion Triggered New Policies to Shrink Role of Predatory Government, Which Worked More Effectively In:

i) Large economies than small ones

ii) Resource-poor economies than resource-rich

iii) Countries near dynamic de-industrialising advanced economy > countries in remote regions/ near large moribund economies  

iv) Market reform incremental + endogenous, rather than rapid + externally imposed. 

Institutions don’t show up here, let alone dominate

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Natural Resources, Growth Collapses and Incentives for Civil Strife

Growth collapses may not be the ‘trigger’ for civil strife but provide conditions in which such triggers easily emerge.

Consistent with Collier (2000), civil strife strong wherea. Primary exports, b. Economic decline (i.e. a growth collapse), which leaves a relatively large young male population (also linked to

growth collapse because collapse retards demographic cycle), with little education so conflict offers immediate financial gain.

In this broader context, civil strife exacerbates degradation of capital that is the legacy of a growth collapse and injects a desire for revenge as an added complication in seeking post-war reconstruction.

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Factoring in Relationship Between Civil Strife + Scale of Rent

Literature suggests positive relationship between civil conflict + drugs:

Expansion of illicit drug trade draws domestic economic activity out of the

formal economy and thereby diminishes government revenue whileincreasing public expenditure on security = undermines governmentlegitimacy.  Results suggest:i) Both share of taxes in GDP + share of income taxes within total

taxes are lower in high-drug economies. ii) Corruption + civil strife are higher in drug-producing countries. iii) Indirect link: both lower government expenditure + perceived

government corruption feed civil strife, but perceived corruption seems more influential (cuts government moral authority).

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Drug-Fuelled Civil Strife as an Extreme Case of Rent Capture (whether natural resource rent, geopolitical rent (foreign aid) or contrived rent (change relative prices))

Rent is > 40% of GDP in most LDCs. a) High rent encourages governments to redistribute at expense

of incentives for wealth creation. Scale of LDC rent makes little wonder many governments corrupted when invited to override markets

 b) Drugs = extreme on continuum of rent capture + deployment,

with resource-poor countries at other extreme (e..g. Mauritius + East Asian four).

 c) Corrective policy = practical strategy to re-channel rent from

redistribution, which can spiral into violence, -> broad-based wealth creation.

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Share of Rents in GDP 1994 and GDP Growth 1985-97 (World Bank 1999)

Resource endowment PCGDP growth 1985-

97

Total rent (%GDP)

Pasture & Cropland rent

(% GDP)

Mineral rent (% GDP)

Resource Poor

Large 4.7 10.56 7.34 3.22

Small 2.4 9.86 5.41 4.45

Resource Rich

Large 1.9 12.65 5.83 6.86

Small, non-mineral 0.9 15.42 12.89 2.53

Small, hard mineral -0.4 17.51 9.62 7.89

Small, oil -0.7 21.22 2.18 19.0

All Countries 15.03 8.78 6.25

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Can More Nuanced Classifications Shed More Insight into Ethnicity, Civil Strife + Public Expenditure?

Findings clear and refute literature: Factionalism does not increasemilitarization and so cannot cause the observed lower public

spending.  Heterogeneity may depress long-term growth because sweeteners

(rent)may be key part of process by which ethnic groups resolve tensions

inheterogeneous societies, at the expense of public expenditure. May be able to say more about ethnic heterogeneity by deploying

morenuanced classification of LDC political state, beyond democracy +autocracy

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Evolution of Political Accountability Under High Rent

Autonomy of State

Basic Aims of State

Critical Features

Rent Pattern

Predatory Autocracy Maximise elite rent siphoning, through force if necessary

High rent, violent predation, staple trap trajectory

Point rent extraction by elite depresses GDP growth

Concentrated Oligarchy

Dominant faction captures policy to sustain rent + power

High rent, unequal asset shares, staple trap trajectory

Point extraction, but some public goods benefit mainly elite

Polarised Democracy Capture rent for clients, even if slows GDP growth

Democracy polarised so policy swings retard GDP growth

Rent extraction + distribution to clients > PCGDP growth

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Evolution of Political Accountability Under Low Rent

Autonomy of State

Basic Aims of State

Critical Features

Rent Pattern

Benevolent Autocracy (Nation Builder)

Secure rapid GDP growth to sustain elite + build social unity

Low rent, external threat, poor have low opportunity cost

Low rent siphoning, efficient diffuse rent raising + dispersal

Diffusing Oligarchy Co-opt new rich into elite to deter policy capture + sustain rapid GDP growth

Low rent, intra-elite rivals; rapid low gini PCGDP growth

Low diffuse wealth extraction for public goods + broadened wealth creation

Consensual Democracy

Growth then equity by providing basic social entitlements

Low rent, middle class growth dilutes elite + shrinks poor

Diffuse extraction + dispersal for growth with equity

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Conclusion

It might help while flying at 40,000 feet to have more input from ground control.

For example:

1. Civil strife appears to grow out of growth collapses and the cumulative degradation of all forms of capital which that process entails

2. Patterns of rent flows derived from case studies reveal a lot about the process of economic development.

3. A more elaborate classification of political states should remove the blurring that arises from a simple dual classification, for

example