No oil wars in Latin America?

Via Chris Blattman, resource curse academic Michael Ross has a new paper which finds that in Latin America, unlike the rest of the world, oil wealth seldom leads to secessionist conflicts.

In the rest of the world, oil heightens the danger of both “governmental” conflicts (over control of the existing state) and secessionist conflicts (to form new states); but in Latin America, oil is only linked to governmental conflicts. This is not because Latin American petroleum has unusual properties, but because the region is uniquely “secession-proof”: there have been no separatist conflicts in Latin America for over a century. I explore two possible explanations for this anomaly: the region’s long history of sovereign statehood, which may have caused national borders to become more widely-accepted; and obstacles to the mobilization of indigenous groups along ethnic lines.

As a few of Chris' commenters point out, I think the obvious counterexample is Bolivia, where there are genuine and long-standing secessionist (and ethnic) tensions between the poorer, more indigenous highlands and the wealthier, whiter lowlands (where, incidentally, most of the natural gas is to be found). It is to be seen how these ultimately play out.

It also reminds one how sample size is an such obstacle to any sort of meaningful statistical analysis in international relations or development.

Does the oil curse exist?

The oil curse is a generally accepted truth - there are is no shortage of anecdotes from countries with oil (e.g. Brazil, Nigeria) and concern from those who might discover it (e.g. Greenland). The comparative growth trajectories of Latin America and China/India draw a striking (if not statistically rigorous) contrast between natural resource wealth and economic growth.

But at Aid Watch, Adam Martin questions whether the curse does in fact stand up to analytical scrutiny. He argues that empirical work on the oil curse confuses abundance with dependence and cites three recent papers that show that "even natural resource dependence does not undermine democratization." He later clarifies for commenters:

- I’m not claiming there are no ill effects associated with natural resources. I’m saying these studies failed to find evidence that resources systematically effect democracy, growth, or development, and most of the popular studies that do have fundamental flaws.

- It’s also not the case that these studies (or I) claim that there are NO countries that fit the Curse story, but that it’s not the systemic phenomenon other studies had argued for.

It's quite an interesting and counterintuitive finding. I am inherently skeptical of cross-country regressions, especially when they run counter to things that so many people have seen firsthand in practice. But it is good to keep an open mind, and I applaud Martin for arguing the other side of the story.

Commodity specialization in Latin America

Here's a striking stat from last week's Economist:

But the pattern of trade and investment so far reinforces the fear among some Latin Americans that China is causing the region to respecialise in commodities, as it did in the 19th century, to the detriment of industry. While China’s exports to the region span a wide range of manufactured goods, its imports are highly concentrated in a few commodities (see chart 2). Soyabeans and iron ore account for two-thirds of Brazil’s exports to China, and crude oil for a further 10%. (By contrast, Brazil’s exports to the United States are mainly manufactures.)

If I were an aspiring economic superpower and almost 80% of my exports to my largest trading partner were three essentially raw commodities with little value-added, I'd be a little concerned. One is hard-pressed to find any examples of nations who climbed (and stayed atop) the economic ladder through commodities alone. Maybe Norway is the best example? But I feel like Norway had a lot else going for it as well. And as the Economist article points out, while "this specialisation is not necessarily damaging in itself," Latin American countries will have to find ways to improve the competitiveness of the parts of the economy that actually make widgets, rather than pulling black or green gold from the earth.

There's no competition here

While China was ostensibly not on Hillary Clinton's mind for her recent visit to Angola, it doesn't seem far from the latest U.S. energy move in Latin America.

The U.S. government is prepared to provide up to $10 billion in loans to finance the development of massive hydrocarbon reserves off Brazil’s coast, a Brazilian official said Wednesday.

...

The loan is equal in value to a similar credit line agreed to with the China Development Bank, also for exploiting Brazil’s “pre-salt” area, so-named because the estimated 80 billion barrels of high-quality crude in that new oil frontier lie far beneath the ocean floor under layers of rock and an unstable salt formation.

In any case, China is not waiting around, judging from the strange news that China may be readying a bid for YPF Repsol's declining Argentine assets.

Natural resources and economic growth

Some striking economic facts on China, India and Latin America from NextBillion.net:

In 1980 the Latin American and the Caribbean (LAC) economy was twice as large as that in China and India. By 2004, LAC was 20% smaller than China and India. The fast economic growth of these two countries was accompanied by a speedier integration in world markets, while LAC stayed behind. Today, China’s and India’s combined share of world exports is 50% larger than LAC’s share, while in 1990 the opposite was true.

What's striking is that this reversal took place in the context of Latin America being rich in natural resources, and China and particularly India being resource-poor - a stark macro-level illustration that resource wealth all too often does not translate into economic prosperity.

China grows in LatAm

China has surpassed the U.S. not only as the world's largest auto market, but also as the top trading partner of commodity-rich Brazil. I was most struck by this anecdote illustrating how China's cultural clout is growing in parallel:

Aiping Yuan came to Rio de Janeiro from Beijing in 1997 on a lark, fell in love with the city and decided to stay. She studied Portuguese, and when Brazilian President Luiz Inacio Lula da Silva made his first visit to China in 2004, she opened a small school in Rio to teach Mandarin.

She began with six students and today has 300, including senior executives at Petrobras, the country's biggest oil company, and Vale do Rio Doce, the biggest mineral producer [emphasis mine]. Both have growing business with China.

"Chinese is the language of the future for Brazil," Yuan said with a big smile.

China is also pursuing Argentine energy assets while Western majors sit on the sidelines. Some allege China is pursuing "short-term goals", but seems to me it's actually being more far-sighted than the vaunted Western energy giants in aggressively buying scarce resources at attractive prices during the economic downturn.