The Resource Paradox Continuation

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The Resource Paradox Continuation

Lecture notes for 1/23

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University of Colorado at Boulder
Econ 3535 - Natural Resource Economics

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Lecture 4 Current Lecture The Resource Paradox: 1 prices  drop so rapidly that they cut the revenue stream; cuts government spending a developing countries’ governments spend a lot of money  prices fall  funding for infrastructure is cut drastically; projects often come to a halt b revenues are not stable with an economy based on natural resource exports  economic growth is almost impossible 2 currency appreciates a lowers price of imports; raises price of exports b encourages domestic production c wipes out non-natural resource domestic production d foreign consumers substitute away from non-natural resource goods e economy transforms to focus solely on natural resources 3 rent seeking behavior  public sector a measure of success is profit  stock price appreciation Venezuela: - 1980s: regular cycle of democratic elections o Hugo Chavez elected as President  determined to be President for forever o 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 War - elected Marxist government and in response, a rebel group called “UNITA” formed o President Carter funded UNITA - Carter supported UNITA’s leader, Jonas Savimbi and put him in power  sponsored by oil and diamond export revenues ECON 3535 1st Edition

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