The Devil’s Excrement at work at the micro level in Brazil

January 29, 2010

People who study countries that suffer from an abundance of resources, whether you call it The Dutch Disease, The Devil’s Excrement or the curse of abundant resources, spend a lot of time trying to compare countries which sometimes have many social, cultural or even religious differences that lead some to question whether a comparison is appropriate. A couple of Professors at the London School of Economics have done a very ingenious study in Brazil, which appears to show that The Devil’s Excrement is at work at a more micro level in a single country, where cultural and social differences are limited.

What they did was go to Brazil where municipalities apparently benefit directly from their oil wealth (I was not aware of this), creating municipalities with different levels of oil income, but despite these they do not show any significant differences with other municipal characteristics.

What is available on-line does not talk much about methodology, but the authors conclude that oil production has no impact on non-oil activities and more remarkably, when onshore oil contributes to the economy of the municipality, the manufacturing sector shrinks and the service sector expands in that municipality (Sound Familiar?)

While the authors do find that richer municipalities spend more and build more infrastructure, when they look at actual quality of life increases, there are few. For example, there are minimal increases in household income, but this has nothing to do with increased population, for example.

However, the study finds where some of this money may have gone, such as the homes of municipal worker houses increasing in size, more news about corruption cases from the municipality, a higher number of Federal poliec actions in the area and anecdotal cases of corruption involving the Mayors of oil rich areas.

The authors also find that other sources of revenues do have a larger impact and less “missing money”.The only thing I was not clear about is how municipalities with more infrastructure thanks to oil don’t ahev a higher standard of living, but overall I found the paper and many of the references aboyt Venezuela’s disease, quite interesting. I hope you do too.

I guess the curse is hard to get rid off. Maybe this is our solution as a country and I am not kidding.

15 Responses to “The Devil’s Excrement at work at the micro level in Brazil”

  1. Eric Lavoie Says:

    Thanks, without having discoverred your blog, i would never have looked for such information before, thank you, keep it up, i love it.

  2. Kepler Says:

    Very nice post. Sometimes I have thought that if it were not due to the gas emissions, it would be an act of love for the country to just let the engine run and burn some of that petrol that make us so parasitic (but of course, environmentally it is a disaster).

    The only country I know of that has been to a certain extent reasonable
    about its dependency is Norway (and even they will feel the pinch within some years). Still, as far as I have seen, Norway, contrary to the myth, was not so poor before the discovery of oil. It was a bit poorer than Sweden and Germany, but only so much. Most importantly,
    the level of education was pretty high from early on. Norway had Nobel prizes in science and literature from early on. Kings and councils invested very early on basic good education for all.

    There are many more factors than just that but I think unless we realise so far real, effective basic education has been a quimera for most and we do something about it, we are simply not moving forward.

    The real shit is that when it comes to education, but for some islands like the USB and some departments at Ucv, Uc and a few other places, the vast majority of Venezuelans is lagging behind even in the framework of underdeveloped South America.

    Poor little Bolivians? Poorer little Venezuelans, I’d say…just treading upon oily soil.

  3. Dagoberto Says:

    Dear Miguel:

    And what about lessening (not eliminating) the effects of Dutch Disease by direct assignation of a sizable part of oil income to each living Venezuelan?.

    This is an issue that has been long discussed in other places, and I would really like to read your opinion on it.

    Some links:

  4. AndyG Says:

    Several months ago I was discussing this subject with a friend from Brazil and was comparing various countries with the problem to Texas. Why, I asked is petroleum the economic engine that propelled Texas from a average state with an economy dominated by agriculture to the robust diversified economy it has now, when it has busted so many other equally less developed economies. My friend said that maybe instead of studying how so many places have failed we ought to look at the places that suceeded. I personally think that the historical time at which a lot of this happened has a very large influence. A historic comparison between Texas and Mexico and how petroleum development worked in both economies would be a very interesting place to start.

  5. Andres F Says:

    That bacteria looks like a very good solution.

  6. Alek Boyd Says:

    Miguel, please not that one of the guys is …CEPR Research Affiliate…

    Not to be compared con la cagada esa que le canta las loas a Chavez up in the Hill…

  7. HalfEmpty Says:

    Texas is part of a rather large federal system. The Dutch Disease was in large part mitigated by that factor. Now a fun mind-exercise is to consider what might have happened to the Texas Republic if it was running the show when SpindleTop was found.

  8. AndyG Says:

    There are so many factors. private ownership vs state ownership of subsurface minerals is a big one and the root of a lot of the effects. How would things be different if the oil rights were owned by the local tribes in Africa or the municipio in Latin America instead of being controlled by the powers that be in the national governments. Even countries everyone considers very well off, like the major producers in the middle east , have had serious economic problems due to the boom and bust nature of the industry. A couple years ago I was talking to a young friend, a recenty graduated geologist who had a job working in “the patch” he told me ” this boom is never going to end” trying to correct him would have been in vain. I guess every generation has to learn for themselvs. There is a bumper sticker one used to see around here that said ” Lord: please let us have one more boom, and I promise not to piss it away this time ” Do other forms of easy money do this to countries or are petro dollars worse ?

    by the way, Latin governments claim that subsurface mineral rights are theirs because those right originally belonged to the King of Spain does not hold up to close scrutiny.

  9. Bill Simpson of Slidell USA Says:

    Thanks for the MIT article on the same page about their work on nuclear fusion at the National Ignition Facility. It is a very interesting read. 1,000,000,000,000 times atmospheric pressure got my attention, as did 200,000,000 degrees Kelvin. If we can ever perfect fusion, the energy crisis is over.
    Whoops! Since the fusion process may use gold, Venezuela could still be in trouble, as I had hoped to invest in a Canadian company that was trying to develop a big Venezuelan gold deposit, but, as far as I know, hasn’t gotten permission. With what is going on down there now, there is no way I would touch it. They go into debt to get the mine going, get nationalized, and then go bankrupt. There went your money. Karma for being a greedy yankee exploiter of the poor, no doubt. But it says something when people are afraid to invest in a PROVEN gold deposit !!!

  10. moctavio Says:

    Was that Crystallex?

  11. [...] Devil’s Excrement has an interesting post that analyzes a summary article, “ Oil windfalls and living standards: New evidence from [...]

  12. Tomas K Says:

    Venezuela had one of the first “country fund” in the first period of President Perez (around 1975), it was Fondo de Inversiones de Venezuela (FIV), which main purpose was investing abroad the financial resources categorized as a surplus for our national budget.
    It was an excellent idea -from time to time the venezuelans generate good ideas- but we are no persistens persons, then the FIV failed in its commitements.
    The norwegean fund is a different case because is another counrty, another people, very educated. For me should be a surprise if the brasilians achive a good level of administration of their richness.

  13. loroferoz Says:

    “Why, I asked is petroleum the economic engine that propelled Texas from a average state with an economy dominated by agriculture to the robust diversified economy it has now, when it has busted so many other equally less developed economies.”

    Most probably because the oil revenue was never ever ever nationalized or controlled by the government.

    Because the oil companies paid taxes. Those taxes were used on infrastructure needed because the state grew economically because…

    the oil money had been invested in a rational manner by people seeking to produce more wealth from it, who had actually made that money before in oil or other activities and actually produced wealth, before.

    No pseudo-keynesian antics, no make-work, no handing down of money. Whatever you might say of them, they seem not to produce economic development or stability.

  14. [...] Referências: Dutch Disease (Wiki), Doeça Holandesa (Wiki), O Caso do Canadá, Inexistência de Doença Holandesa no Brasil da viragem do século, Efeito no Brasil, a existir, é mais a nível micro. [...]

  15. [...] Referências: Dutch Disease (Wiki), Doeça Holandesa (Wiki), O Caso do Canadá, Inexistência de Doença Holandesa no Brasil da viragem do século, Efeito no Brasil, a existir, é mais a nível micro. [...]

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