Dutch Disease and the Public Sector: How Natural Resources Can Undermine Competitiveness in Africa

James Cust, Shantayanan Devarajan and Pierre Mandon

Journal of African Economies, 2022, vol. 31, issue Supplement_1, i10-i32

Abstract: Slow growth in manufactured and agricultural exports has been attributed to the high share of natural resources in many African economies. Not only does the resource sector draw labour and capital away from other sectors, but also the spending of resource revenues in the domestic economy bids up the price of non-tradable goods, making the tradable sectors less competitive—a phenomenon known as Dutch disease. This paper argues that an important and neglected channel for this effect is through the public sector. Since government receives a large portion of resource revenues, the public-sector booms alongside the resource sector. But the government is largely unaccountable for the spending of these revenues, since they are not raised via taxes on citizens. The result is this money might be spent in inefficient and distortionary ways, undermining competitiveness. One solution may be for government to transfer natural-resource revenues directly to citizens and then tax them to finance public expenditure. The increased accountability might improve the effectiveness of the public sector and therefore the competitiveness of the private sector.

Keywords: Africa, resource curse, public sector, natural resources, Dutch disease, JEL Codes: O14; O55; Q33 (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1093/jae/ejac017 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jafrec:v:31:y:2022:i:supplement_1:p:i10-i32.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

Journal of African Economies is currently edited by Francis Teal

More articles in Journal of African Economies from Centre for the Study of African Economies Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().