Abstract

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. Rodrik (1999) 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. In this paper we demonstrate that, in this respect, countries with what we term "point source" natural resource exports are doubly disadvantaged. Not only are countries with these types of exports exposed to terms of trade shocks, but also the institutional capability for responding to shocks is itself endogenous and negatively related to export composition. Using two different sources of export data and classifications of export composition, we show that "point source" and "coffee/cocoa exporting" countries do worse across an array of governance indicators (controlling for a wide array of other potential determinants of governance). This is not just a function of being a "natural resource" exporter, as countries with natural resource exports that are "diffuse" do not show the same strong differences-and have had more robust growth recoveries. * It matters whether a state relies on taxes from extractive industries, agricultural production, foreign aid, remittances, or international borrowing because these different sources of revenues, whatever their relative economic merits or social import, have powerful (and quite different) impact on the state's institutional development and its abilities to employ personnel, subsidize social and economic programs, create new organizations, and direct the activities of private interests. Simply stated, the revenues a state collects, how it collects them, and the uses to which it puts them define its nature. Terry Karl, The Paradox of Plenty 2 [I]t is useful to contrast the conduct of governments in resource-rich nations with that of governments in nations less favorably endowed. In both, governments search for revenues; but they do so in different ways. Those in resource-rich economies tend to secure revenues by extracting them; those in resource-poor nations, by promoting the creation of wealth. Differences in natural endowments thus appear to shape the behavior of governments.