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CU-Boulder ECON 3535 - The Resource Paradox Continuation

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ECON 3535 1st Edition Lecture 4 Current LectureThe Resource Paradox:1) prices  drop so rapidly that they cut the revenue stream; cuts government spendinga. developing countries’ governments spend a lot of money  prices fall  fundingfor infrastructure is cut drastically; projects often come to a haltb. revenues are not stable with an economy based on natural resource exports  economic growth is almost impossible2) currency appreciatesa. lowers price of imports; raises price of exportsb. encourages domestic production c. wipes out non-natural resource domestic productiond. foreign consumers substitute away from non-natural resource goodse. economy transforms to focus solely on natural resources3) rent seeking behavior  public sectora. measure of success is profit  stock price appreciationVenezuela:- 1980s: regular cycle of democratic elections o Hugo Chavez elected as President  determined to be President for forevero Oil exporter  increase power by nationalizing oil No more private firms/foreign producers- nationalized finance banking, media, electricity, steel, etc.- control economy  track votes  forcing citizens to choose between democracy and keeping their jobs- public ownership is always less efficient than private ownership- Venezuela will soon face collapse and bankruptcy Angola:- oil and diamonds  colonized by Portugal for its natural resources- 1975 elections = Cold WarThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- elected Marxist government and in response, a rebel group called “UNITA” formedo President Carter funded UNITA- Carter supported UNITA’s leader, Jonas Savimbi and put him in power  sponsored by oil and diamond export revenues- Used the export revenues to fund a civil war  the civil war caused ½ million people to dieo Only 5% of the resource revenues were used for public infrastructure- 2002: Savimbi died  at that time, only 5 miles of paved road existed in the entire country (size of Texas)- for the last 100 years, African nations have lived under the resource curseo economic diversity is needed desperatelyAfrica and Economic Growth:- Africa contains: 1/3 of the planet’s natural resources, 1/10 of its oil, 2/3 of its diamonds- Recommendations to Resist Resource Curse:o 1) better government savings when resources are higher; save revenue surplus rather than spending it on large government projectso 2) maintain a more stable currency (10%)o 3) past decade average real GDP growth  >5%o 4) foreign direct investment (foreign companies bring in money and build infrastructure for production in the host country) service sector, manufacture sector  creates jobs U.S. banks  help the domestic economy (ex:


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CU-Boulder ECON 3535 - The Resource Paradox Continuation

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