The Diversification Challenge in Africa's Resource-Rich Economies

Publication Date: December 2008

Publisher: Brookings Institution

Author(s): John Page

Research Area: Economics; Environment

Keywords: Africa; global economics; economic development; development

Type: Report

Coverage: Africa

Abstract:

For a growing number of countries in Africa the current commodity boom is a huge opportunity. But if the economic history of resource-rich, poor countries - especially in Africa - is any guide, rather than bringing prosperity, the resource boom may drive them into what Paul Collier (2007) in his influential book The Bottom Billion terms the "Natural Resources Trap." In Africa, countries dependent on oil, gas, and mining have tended to have weaker long-run growth, higher rates of poverty, and higher inequality than non mineral-dependent economies at similar levels of income.

This paper is about one important set of choices faced by Africa's resource-rich economies, whether and how to diversify production beyond the natural resource sector. Following this introduction, Section 2 examines the role of natural resource exports in Africa's recent growth recovery. Using a new methodology developed by Arbache and Page (2007) it finds that Africa's growth acceleration after 1995 has been driven mainly by avoiding the policy mistakes that led to sharp economic contractions in the past and by a strong surge in growth in the resource-rich economies. This makes Africa's long-run growth prospects vulnerable to the natural resource curse.