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Understanding oil and mineral resources in a political economy context: the case of the Middle East and North Africa (MENA)

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Abstract

This study revisits a topic that was widely debated in the 1980s and 1990s—the resource curse. The study not only explores why oil and mineral revenues do not lead to economic growth, but attempts to explain why this phenomenon continues by proffering a political economy framework. There is empirical evidence presented on both the importance of oil and mineral exports/revenues for the Middle East and North African (MENA) region as well as trends in merchandise exports. The study demonstrates that after much emphasis on diversification through channeling oil and mineral revenues into other activities during the past decade the region remains dependent on these resources. The paper proffers four reasons of why this “resource curse” persists. These are corruption, lack of democracy, military spending, and foreign funds outflow which are common in oil- and mineral-dependent states and tend to lead to a negative growth in the MENA region. The timing of this study is important in the wake of the Arab Spring. The Gulf Cooperation Council policy makers spent $150 billion on salary raises, infrastructure, and social amenities in order to accommodate social pressures due to the internal unrest that many MENA countries are now experiencing and will continue to experience. This is in part because 65 % of their populations under the age of 30 continue to search for meaningful employment in socio-economic systems that do not generate growth or jobs. The findings of this study also show that diversification without good governance does not lead to better growth in spite of resource abundance.

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Notes

  1. There is some debate about just which countries make up the Middle East and North Africa. Different international institutions include different sets of countries. Mauritania, Sudan and Turkey are not part of the MENA region in the World Bank’s classification of countries. Other institutions do, however, sometimes include these three countries in the list of MENA countries since they are geographically close to the region. For example, Mauritania is classified as a North African country by the African Development Bank.

  2. The average youth unemployment rate in the world is 12.7 %, and 12.5, 9.9, and 8.8 % in Sub-Saharan Africa, South Asia, and East Asia respectively (International Labor Office 2011).

  3. The Dutch disease is a theory that attempts to explain the relationship between the increase in exploitation of natural resources and a decline in the manufacturing sector.

  4. UAE had a positive real GDP per capita in the last decade because Dubai had a dramatic boom in the construction sector with projects estimated at hundreds of billions of dollars. The construction sector benefited from the recent increase of oil revenues, repatriation of GCC money due to attractive business opportunities and historically low interest rate. Tourism is also being promoted at a staggering rate with the construction of Dubai land and other projects that include the making of mammoth shopping malls, theme parks, resorts, stadiums and various other tourist attractions.

  5. Resource abundance effectively corresponds to an estimate of the total stock of sub-soil assets (proven reserves) while resource dependence concept refers to the measures of the country’s share of exports or production of minerals to its GDP or its total exports ( a flow variable). The terms resource abundant and resource-dependent are frequently used quite interchangeably in popular discourse. Brunnschweiler and Bulte (2008) argue that natural resource exports indicators often used in the resource curse literature capture resource dependence rather than resource abundance. Boschini et al. (2013) stated that in models where a politician faces some trade-off between grabbing resources today or developing other parts of the economy in expectation of future gains, or where individuals, for example, choose to work in the (existing and dominant) resource sector rather than educating themselves, or where individuals can become “producers” or “grabbers”, it is the share that resources make up of the economy at the point of deciding that matters. Measures of reserves (which are arguably more exogenous) or measures of geography or geology would not be appropriate from this perspective.

  6. It is estimated that 65 % of the region’s population is under the age of 30 (Middle East Youth Initiative 2010).

  7. Index of export diversification shows an extent to which a country’s export depends on particular products relative to world exports. It ranges from 0 (most diversified) to 1 (least diversified). It is calculated as a modification of the (Finger and Kreinin 1979) measure of similarity in trade:

    $$ D{X}_j=\frac{{\displaystyle \sum_i\left|{h}_{ij}-{h}_i\right|}}{2} $$

    where

    h ij is the share of product i in total exports of country j

    h i is share of product i in total world exports.

  8. MENA countries are identified in Fig. 2 by labels using the NATO country code. Jordan ( JOR); Syria (SYR); Mauritania (MTN); Egypt (EGY); Tunisia (TUN); Bahrain ( BHR); Israel ( ISR); Kuwait (KWT); Libya (LBY); United Arab Emirates (UAE); Oman (OMN); Morocco (MAR); Algeria (ALG); Kingdom of Saudi Arabia (KSA); Sudan (SDN); Qatar (QAT); Yemen (YEM); Iran (IRN); Turkey(TUR); Lebanon (LBN); Iraq (IRQ) and Djibouti (DJI).

  9. No panel data has been used and more clarification for variables used is identified in the Appendix.

  10. Convergence indicates that GDP per capita of countries with lower initial GDP per capita grow more rapidly than this of countries with higher initial GDP per capita

  11. Corruption Perception Index (CPI) ranges from 0 to 10, with 10 being the least corrupt and 0 being the most corrupt. We have normalized the measures of corruption so that the scores lie between 0 and 1, with 0 being least corrupt and 1 being most corrupt.

  12. Democracy is measured as Polity IV index which ranges from −10 for an extreme autocracy to +10 for the most democratic states. This variable measures competitiveness of political participation, competitiveness of executive recruitment, openness of executive recruitment and constraints on the chief executive. . We have also normalized the measures of democracy so that the scores lie between 0 and 1, with 0 being least democratic and 1 being most democratic.

  13. Military spending is part of fiscal government’s expenditures and it forms the highest percentage of total government expenditures in most of MENA countries. For examples, Jordan’s military spending in 2011 formed 26 % of total government expenditures compared to Employees compensation (15 %), subsidies (14 %), social benefits (16 %) and capital expenditures (16 %) (Central Bank of Jordan 2013).

  14. Foreign outflows may have mixed results on economic growth. If they are invested abroad in projects or portfolios with high capital returns, they may have a positive effect and vice verse, but the net results is that even if they have achieved high profitability, are the returns kept outside or sent back home, and even if they are sent back home, are they being used to develop other sectors of the economy in order to increase economic growth or only confiscated by corrupt people. Some authors consider this type of money as capital flight in which assets or money rapidly flow out of a country, due to an event of economic consequence.

  15. Coefficients of γ 3 were taken from Table 13 and coefficients of β 1 were taken from Tables 9, 10, 11 and 12.

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Acknowledgments

We would like to thank Philip Maxwell, John Tilton, and Nora Ann Colton for their helpful comments on an earlier version of this paper.

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Authors and Affiliations

  1. Department of Mining Engineering, College of Engineering, Al-Hussein Bin Talal University, P.O. Box 20, Ma’an, Jordan

    Rami Al-Rawashdeh & Hani Al-Nawafleh

  2. Department of Accounting, College of Business Administration and Economics, Al-Hussein Bin Talal University, Jordan. P.O. Box (20), Ma’an, Jordan

    Mohammad Al-Shboul

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  1. Rami Al-Rawashdeh
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  2. Hani Al-Nawafleh
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  3. Mohammad Al-Shboul
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Correspondence to Rami Al-Rawashdeh.

Appendix

Appendix

Table 15.

Table 15 Definition of major variables used in the regression analysis
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Al-Rawashdeh, R., Al-Nawafleh, H. & Al-Shboul, M. Understanding oil and mineral resources in a political economy context: the case of the Middle East and North Africa (MENA). Miner Econ 26, 13–28 (2013). https://doi.org/10.1007/s13563-013-0035-3

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