Exchange to Change January 2018 E2C January 2018 web - Page 17

RESEARCH resources, the higher uncertainty and its negative effect on the economy. For instance, according to van der Ploeg and Poelhekke (2009), 2.98 percentage point extra growth per annum is lost due to the high volatility of unanticipated output growth in resource-rich Africa compared with their South-East Asian counterparts. The Governance Curse: in a context of weak institutions, it is likely that the resources lead to corruption, rent-seeking and weakening of the government. Resource abundance also increases the political benefits of buying votes through inefficient redistribution (Mehlum et al, 2006) and where the government is unable to provide basic security, it encourages or fuels internal conflicts (Collier and Hoeffler, 2004). For example, ‘enormous natural resource wealth in DR Congo gave Mobutu a constant flow of income to help sustain his power’ (Acemoglu et al., 2004) and has been driving rebel group formation and warlord competition. Some good practices and policies to avoid the natural resource curse Although not a panacea, there are some general principles and policy 17 suggestions on how to avoid or mitigate the detrimental impact of the resource curse. For instance, based on a literature review on the resource curse, Sarraf and Jiwanji (2001) make a number of suggestions: Investment strategy: carefully analyze absorptive capacity, all recurrent costs, opportunity costs and alternative options before investment decisions; promote investment with high social rates of return, particularly in human capital and infrastructure. Economic diversification: improve overall economic performance, particularly in non-mineral sectors, to reduce E xchange to change J anuary 2018