Resource Booms, Industrial Busts, and Cross-Border Spillovers in Post-Colonial Africa

Abstract

Resource-rich nations have been found to experience slower economic growth than their resourcescarce peers. This phenomenon is known as the Dutch disease. The theory of the Dutch disease posits that when an economy discovers a marketable natural resource, its tradable sector, led by manufacturing, withers. This withering is because the boom in natural resource rents inspires a shift of capital and labor away from the tradable sector (especially manufacturing) into the natural resources sector. As manufacturing shrinks, the general economy is deprived of the critical benefits of manufacturing, such as learning-by-doing and higher productivity growth, leading to deindustrialization and slower economic growth. However, given growing regional integration and interdependency, this study asks what a resource curse in one country means for its neighbors. That is, does the Dutch disease have a cross-border spillover effect? The dissertation hypothesizes that as manufacturing shrinks, a significant share of the manufacturing high-skill labor will migrate into neighboring countries while low-skill labor shifts focus onto raw material production meant for cross-border exports. Neighboring countries are expected to absorb the migrating labor and cheap raw materials, leading to higher growth of their manufacturing sectors. The hypotheses were tested using Ordinary Least Squares (OLS) regression, spatial regression, and cross-case comparison research methodologies. Significant support was consistently obtained for the migration hypothesis, indicating that natural resource curses have a significant positive spillover. The study’s contribution is an extension of the resource curse theory and a commencement of a crucial conversation about the cross-border externalities of a resource curse.