Natural Resources and Violent Conflict - WaterWiki.net

natural resources and conflict 9protected from the adverse effects of price fluctuations and less proneto the resource curse. On average, developing-country exports are nolonger predominantly primary commodities. But this average masks askewed pattern—at one extreme, the successful developers that haveachieved astonishingly rapid diversification and, at the other, a groupof low-income countries that have been left behind by development andmarginalized from world markets. The fact that the former group hassucceeded shows that it is possible for the marginalized to do the same;however, diversification may not always be a realistic or even a desirableoption—Botswana is a landlocked desert with few options otherthan diamonds. For such countries, the priority should be to makenatural resource endowments work effectively for development, asBotswana has managed to do. But for many countries, diversification issurely a viable option.Three factors significantly reduce a country’s dependence on primarycommodities: growth, aid, and policy. On average, growth diversifiesan economy, which reduces the risk of conflict in addition to the directcontribution of growth to risk reduction. This does not imply that allpolicies that promote growth promote diversification, but there is somepresumption that the inducement of growth will normally assist diversification.Aid significantly reduces primary commodity dependence.This may be partly a result of “Dutch disease,” which, by increasingthe availability of foreign exchange, leads to appreciation of the exchangerate and thus reduces export incentives. Aid may also improveinfrastructure—transport, power, telecommunications—which can helpto lower business costs and improve the international competitivenessof activities that do not rely on high location-specific rents for their profitability.Good economic policy also significantly promotes diversification.Collier and Hoeffler (2003) measure this using the World Bank’sCountry Policy and Institutional Assessment (CPIA) ratings. On average,an improvement of 1 point in the CPIA—roughly equivalent to thedifference between African and South Asian policies—would reduce primarycommodity dependence from 15.2 percent of GDP to 13.8 percent.As pointed out in chapter 2, OECD (Organisation for EconomicCo-operation and Development) countries can also help naturalresource–dependent, low-income countries to diversify by removingtariff and nontariff barriers on value added goods. OECD countriesplace no tariffs on imports of unprocessed oil and minerals, butexporters quickly run into tariffs and nontariff barriers if they wishto add value to these raw materials.Reducing Exposure to Price Shocks. Many of the problems causedby resource dependence come from the volatility of international prices.