How Natural Resource Use Generates Externalities for Neighboring Countries

• In Event: International Relations in Africa

Abstract

Researchers have recorded evidence of the resource curse in countries such as Nigeria and the Democratic Republic of Congo (DRC). Several studies have leveraged this evidence to explain the poor socio-economic performances of these countries. However, no one has yet inquired why Nigeria's neighbors – such as Cameroun, Niger, and Benin – who are not resource-rich, are also performing poorly. Following this phenomenon, this paper asks: does the resource have a spillover effect?
Using data for 34 African countries, this paper hypothesizes and finds evidence that resource exploration generates both negative and positive spillovers for neighboring countries. The paper argues that a resource curse (also known as the Dutch-disease), where wages disproportionately increase for some sectors of the economy against the rest, collapses domestic industry while weakening the organizational capacity of labor. As industry shrinks, local producers are forced to seek neighboring destinations for their raw materials. Also, as labor conditions inevitably deteriorate, the personal transactional costs of mobilization increase, while the expected payoffs of demand for better conditions decrease. Consequently, out-migration, especially by high-skill labor, becomes an expedient economic undertaking as the cost of their high-skill educational investment has to be recouped somehow. Through migration and trade channels, the spillovers are traced from resource-rich countries to non-resource rich ones.
The paper commences a conversation about the spillovers of natural resource exploration for neighboring countries.

Author

• John Taden, Pepperdine University