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Natural Resource Dependency and its Effects on Growth Stability in the Developing Nations of Africa
KATHERINE ANNE DOERR 15 NOVEMBER 2013
Introduction
Hypothesis: Overreliance on a point source resource for the majority of a nations income severely effects the volatility of growth for that country. Independent Variable: Natural Resource Dependence Dependent Variable: Economic Growth Stability Export Structure is given: those countries with oil will export oil, while those countries with the climate for cocoa and coffee will export cocoa and coffee.
Stable countries are easier to govern, and therefor prevent the rise of corrupt political parties.
Prices will become more stable, and people will be able to plan for the future through investments and savings Countries will be able to better handle economic shocks. Unemployment will stay near the natural rate of 4%.
Results are shocking: Anywhere from .43 for Mozambique to 11.44 for Zimbabwe.
Literature Review:
The Varieties of the Resource Experience: Natural Resource Export Structures and the Political Economy of Economic Growth
2008
Natural Resource Abundance in Nigeria: From Dependence to Development 2005 Eric Ogunleye Volatility and the Natural Resource Curse Frederick van der Ploeg and Steven Poelhekke
2005
The Differences
Compares the majority of the African countries against one another as a means to determine resource dependence on economic stability. Uses the most recent data available. Political stability is not the dependent variable in this study, but rather stands as a control variable in the model. I am not looking to reject, but rather support, the notion of the resource curse.
Model
Y = 0 + 1x1 + 2x2 + 3x3 + 4x4 + 5x5 + 6x6 + 7x7 + 8x8
Independent variable
Dependent Variable
High Real Interest rate due to lack of capital Adopted South African rand coins for sub-dollar transactions
Statistical Output
MEAN STDEV GDP/CAP AVG. RESOURCE DEPENDCY (%) CORRUPTION RATING DUMMY SCHOOL ENROLLMENT 3.03 0.49 33.02 0.15 108.55 MEDIAN 2.30 0.46 31 0 107 RANGE 11.01 0.88 52 1 135 MIN 0.43 0.1 13 0 47 MAX 11.44 0.98 65 1 182
8.74 29.16
56.57 62.42
7 26.7
55 69.31
30.9 94.4
27 87.09
1 3.4
48 8.06
31.9 97.8
75 95.15
Lot's of variation
Regression
Regression
Intercept
Coefficients
t Stat
1.75 2.33
P-value
0.09 0.02
Regression
Full Regression Coefficients Standard Error
1.92 1.12 0.03 0.82 0.01 0.02 0.01
P-Value
0.87 0.00* 0.11 0.00* 0.11 0.00* 0.43 *Significant at the 1% level
Intercept 0.32 Resource Dependency 4.69 Corruption Rating -0.04 Dummy -2.71 Scholl Enrollment -0.02 Govt Consumption 0.12 % living >/= $2/day 0.01
N = 49 African Countries All Variables 2008 Data Except Dummy Variable
Conclusion
Traditional Regression: R^2 low, however shows some interrelatedness
high correlation solely between resource dependency and growth stability
extremely low p-value signifies significance at the one percent level, and that we will not reject the null hypothesis. Traditional Regression with Controls: the R^2 skyrockets. the p-value of natural resource dependency stays consistent at 0.00, indicating that it is significant and does reject the null hypothesis. The p-values of the control variables for the Dummy and for Government Consumption indicate significance at the one percent level.
Support the Null Hypothesis
Improvements to Consider: Why are corruption level, life expectancy and school enrolment having a negative effect on economic growth stability?
Questions
Eritrea Djibouti
Ghana
Swaziland Lesotho