employment-intensive sectors, feeds corruption and prevents the transformation of the state into an agent for enabling economic development.
There is firmer evidence still that natural resource rents retard reform. Rents from gold and cotton have been siphoned away by the government of Uzbekistan to feed the protected manufacturing sector. Yet, this strategy ignores the lessons of the market-driven resource-abundant countries: in the absence of more market-sensitive reform, economic growth is likely to collapse. In Russia, natural resource rents have impeded reform because the government offset its declining revenues by using the rents to subsidize consumers. The rents also delayed the competitive diversification of the economy by permitting removal of hard budget constraints on enterprises. In addition, the robust response of the nonresource tradables sector to the negative oil shock of 1998, which may have cut GDP by 5 per cent and brought a sharp depreciation of the real exchange rate, is consistent with the Dutch disease thesis. Lastly, the privatization of natural resources amplified income inequality during the transition and corroded social capital. Fundamentally, the Russian reform programme failed to develop institutions for the effective capture of the oil rents and their deployment for the public good.
Finally, the late-industrializing resource-abundant Nordic countries have managed to wean themselves from natural resource-dependency at different rates, albeit with different consequences for the long-term resilience of their economies. Denmark, the Nordic country least well-endowed with natural resources has experienced most success in diversifying its economy. Finland (like Sweden) has greatly reduced its former dependence on forestry and exhibits little evidence of the legacy of Dutch disease effects. Norway (like Iceland) still exhibits some Dutch disease effects. In addition, an echo effect persists from earlier resource dependence in the form of a fishing lobby whose political clout is disproportionately influential, given the shrunken size of the sector, and possibly detrimentally high. However, with regard to the oil sector, Norway has evolved a rational policy for handling the oil rents that clearly demonstrates the basic thesis of this book: even a large and volatile rent stream with point socioeconomic linkages can be well managed with appropriate social capital.
Brewster, H. (1994), 'Dutch disease in the age of adjustment', paper presented to the UNCTAD Conference on Development, Environment and Mining, Washington DC: World Bank.
Davis, G. (1995), 'Learning to love the Dutch disease: evidence from the mineral economies', World Development, 23 (10), 1765-79.
Edwards, C. B. (1990), Protection and Policy in the Malaysian Manufacturing Sector, Vienna: UNIDO.
Lewis, W. A. (1978), Growth and Fluctuations 1870-1913, London: George Allen and Unwin.
Londero, E. and S. Teitel (1998), Resources, Industrialization and Exports in Latin America, London: Macmillan.