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Extractive Sectors and the Poor

Research paper published by Oxfam America.
Written by Michael Ross, October 2001

Read entire paper (PDF)

Executive Summary

This paper examines how states that rely on oil and mineral exports address the concerns of the poor. Its central finding is that oil and mineral dependence are strongly associated with unusually bad conditions for the poor. To explain this link, it draws on both original econometric analyses, and recent academic studies. Some of its key findings are:

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Overall living standards in oil and mineral dependent states are exceptionally low lower than they should be given their per capita incomes;

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Higher levels of mineral dependence are strongly correlated with higher poverty rates;

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Oil and mineral dependent states tend to suffer from exceptionally high rates of child mortality.

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Oil dependence (though not mineral dependence) is also associated with high rates of child malnutrition; low spending levels on health care; low enrollment rates in primary and secondary schools; and low rates of adult literacy;

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Mineral dependence is strongly correlated with income inequality;

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Both oil and mineral dependent states are exceptionally vulnerable to economic shocks.

A set of problems like this might normally lead to calls for government action. But we also find that oil and mineral dependence has a harmful effect on governments themselves.

Oil and mineral dependent states tend to suffer from unusually high rates of:

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Corruption;

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Authoritarian government;

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Government ineffectiveness;

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Military spending;

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Civil war.

To address these problems, Oxfam calls for:

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Oil and mineral dependent states to diversify their economies; and for the World Bank Group and the OECD states to take measures to help this process;

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Full disclosure of all financial transactions between extractive firms and host governments;

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International funders to only offer extractive sector assistance to states that have become democratic, and have demonstrated a commitment to fighting poverty;

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International funders to only support projects in which the host government specifies in advance how the resource revenues are to be used to alleviate poverty, and agrees to independent monitoring to ensure that this occurs.

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