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Natural Resources and Rent Seeking Collusion in the Context of Dutch Disease

Year 2022, , 599 - 623, 18.01.2023
https://doi.org/10.26650/ISTJECON2022-1063190

Abstract

A new model is proposed in this paper by concentrating on the Dutch disease phenomenon along with rent seeking to demonstrate how a natural resource abundance (or a resource boom) affects resource movement and national income under rent seeking collusion in the energy sector. Dutch disease and rent seeking problems are studied under the natural resource curse theory which states that countries with natural resources usually perform worse than resource-poor countries. The resource movement is considered one of the effects of the Dutch disease. The resource movement occurrence or the movement of labor inputs from services to the energy sector depends on the degree of the boom. The boom may also facilitate rent seeking depending on its degree and the number of firms in the energy sector. In the duopoly case (n=2), a sufficiently small degree of the boom is necessary for rent seeking to be facilitated. However, with more than two firms (n>2), rent seeking activities will not happen because profits in collusion will be less than those without collusion in the model. Hence, the paper analyzes rent seeking by concentrating on duopoly results (n=2). The impact of the boom on national income depends on parameter values.

References

  • Auty, R. M. (2001a). The Political Economy of Resource-Driven Growth. European Economic Review, 45(4-6), 839-846. https://doi.org/10.1016/S0014-2921(01)00126-X google scholar
  • Auty, R. M. (2001b). Resource Abundance and Economic Development. Oxford and New York: Oxford University Press. DOI:10.1093/0199275785.001.0001 google scholar
  • Baland, J. M. & Francois, P. (2000). Rent-seeking and resource booms. Journal of Development Economics 61, 527- 542. https://doi.org/10.1016/S0304-3878(00)00067-5 google scholar
  • Bertrand, L., & Céline, Q. (2015). What do we know about the sharing of mineral resource rent in Africa? Resources Policy, 46(2), 239-249. https://doi.org/10.1016/j.resourpol.2015.10.005 google scholar
  • Bello, A., & Cavero, S. (2008). The Spanish retail petroleum: new patterns of competition since the liberalization of the industry. Energy Policy, 36, 612-626. https://doi.org/10.1016/j. enpol.2007.10.014 google scholar
  • Bruno, M., & Sachs, J. (1982): Energy and Resource Allocation: A Dynamic Model of the Dutch Disease. Review of Economic Studies, 49(5), 845-859. https://doi.org/10.2307/2297191 google scholar
  • Caselli, F., & Guy, M. (2013). Do Oil Windfalls Improve Living Standards? Evidence from Brazil. American Economic Journal: Applied Economics, 5(1), 208-238. DOI:10.1257/app.5.1.208 google scholar
  • Cassing, J. H., & Warr, P. G. (1985). The Distributional Impact of a Resource Boom. Journal of International Economics, 18 (3-4), 301-319. https://doi.org/10.1016/0022-1996(85)90057-1 google scholar
  • Chernova, E. G., & Razmanova, S. V. (2018). Development of Competitive Environment at the Oil Market of Russian Federation: Empirical Analysis. Ekonomika regiona [Economy of Region], 14(2), 547-561. DOI: 10.17059/2018-2-17 google scholar
  • Conti'n, I., Correlje', A., & Palacios, B. (2009). Competition, regulation, and pricing behavior in the Spanish retail gasoline market. Energy Policy, 37(1), 219-228. https://doi.org/10.1016/j. enpol.2008.08.018 google scholar
  • Cournot, A. A. (1838). Recherches sur les Principes Mathématiques de la Théorie des Richesses. Paris, France: L. Hachette. google scholar
  • Corden, W. M., & Neary, J. P. (1982). Booming Sector and De-Industrialization in a Small Open Economy. The Economic Journal, 92(368), 825-848. https://doi.org/10.2307/2232670 google scholar
  • Corden, W. M. (1984). Booming Sector and Dutch Disease Economics: Survey and Consolidation. Oxford Economic Papers, New Series, 36(3), 359-380. https://doi.org/10.1093/oxfordjournals. oep.a041643 google scholar
  • Garcia, J. P. (2010). Dynamic pricing in the Spanish gasoline market: A tacit collusion equilibrium. Energy Policy, 38(4), 1931-1937. https://doi.org/10.1016/j.enpol.2009.11.073 google scholar
  • Gillies, A. (2020). Corruption trends during Africa’s oil boom, 2005 to 2014. The Extractive Industries and Society, 7(4), 1171-1181. https://doi.org/10.1016/j.exis.2020.06.006 google scholar
  • Hindricks, J., & Myles, D. G. (2013). Intermediate Public Economics. 2nd ed., Cambridge, MA: MIT Press, pp. 387- 408. google scholar
  • Kolstad, I., & Wiig, A. (2009). It’s the rents, stupid! The political economy of the resource curse. Energy Policy, 37(12), 5317-5325. https://doi.org/10.1016/j.enpol.2009.07.055 google scholar
  • Lane, P.R., & Tornell, A. (1996). Power, growth and the voracity effect. Journal of Economic Growth, 1, 213- 241. https://doi.org/10.1007/BF00138863 google scholar
  • Muradov, A. (2022). Energy Sector’s Monopoly Rent-seeking and Supplementary Time-series Analysis in the Case of Azerbaijan. Anadolu University Journal of Faculty of Economics, 4(1), 3649. https://doi.org/10.54737/aujfe.1065684 google scholar
  • Neary, J. P., & Wijnbergen, S. (1984). Can Higher Oil Revenues Lead to a Recession? A comment on Eastwood and Venables. Economic Journal, 94, 390-395. https://doi.org/10.2307/2232359 google scholar
  • Ogbuabor, J. E., God’stime, O. E., Charles, O. M., & Ifeoma, C. M. (2018). Asymmetric Price Transmission and Rent seeking in Road Fuel Markets: A Comparative Study of South Africa and Selected Eurozone Countries. African Development Review, 30(3), 278-290. https://doi.org/10.1111/1467-8268.12336 google scholar
  • Ogbuabor, J. E., & Onuigbo, F. N. (2018). Are There Problems of Asymmetric Price Adjustment and Rent-Seeking in Spanish Retail Diesel Market? Saudi Journal of Economics and Finance (SJEF), 2(6), 376-381. Retrieved from https://www.saudijournals.com/media/articles/SJEF-26-376-381-c.pdf google scholar
  • Ogbuabor, J. E., & Onuigbo, F. N. (2019). Response of Italian Domestic Heating Oil Market to Variations in Crude Oil Costs: Symmetric or Asymmetric? Journal of Energy Technologies and Policy, 9(2). DOI: 10.7176/JETP/9-2-02 google scholar
  • Ogbuabor, J. E., Anthony, O., & Onyinye, I. A. O. (2020). Are anticompetitive behaviors rampant in global retail energy markets? A study of price elasticity, asymmetric price adjustment and rent-seeking.Energy Research & Social Science, 70, 101783. https://doi.org/10.1016/j. erss.2020.101783 google scholar
  • Tornell, A., & Lane, P.R. (1999). The voracity effect. American Economic Review, 89, 22-46. DOI: 10.1257/aer.89.1.22 google scholar
  • Torvik, R. (2002). Natural resources, rent seeking and welfare. Journal of Development Economics, 67, 455-470. https://doi.org/10.1016/S0304-3878(01)00195-X google scholar
  • Tullock, G. (1967). The Welfare Costs of Tariffs, Monopolies, and Theft. Western Economic Journal (now Economic Inquiry), 5, 224-232. https://doi.org/10.1111/j.1465-7295.1967.tb01923.x google scholar
  • Van der Ploeg, F. (2010). Why do many resource-rich countries have negative genuine saving?: Anticipation of better times or rapacious rent seeking. Resource and Energy Economics, 32 (1), 28-44. https://doi.org/10.1016/j.reseneeco.2009.07.002 google scholar
  • Van der Ploeg, F. (2011). Curse or Blessing? Journal of Economic Literature, 49(2), 366-420. DOI: 10.1257/jel.49.2.366 google scholar
  • Vicente, P.C. (2010). Does oil corrupt? Evidence from a natural experiment in West Africa. Journal of Development Economics, 92(1), 28-38. https://doi.org/10.1016/j.jdeveco.2009.01.005 google scholar

Natural Resources and Rent Seeking Collusion in the Context of Dutch Disease

Year 2022, , 599 - 623, 18.01.2023
https://doi.org/10.26650/ISTJECON2022-1063190

Abstract

A new model is proposed in this paper by concentrating on the Dutch disease phenomenon along with rent seeking to demonstrate how a natural resource abundance (or a resource boom) affects resource movement and national income under rent seeking collusion in the energy sector. Dutch disease and rent seeking problems are studied under the natural resource curse theory which states that countries with natural resources usually perform worse than resource-poor countries. The resource movement is considered one of the effects of the Dutch disease. The resource movement occurrence or the movement of labor inputs from services to the energy sector depends on the degree of the boom. The boom may also facilitate rent seeking depending on its degree and the number of firms in the energy sector. In the duopoly case (n=2), a sufficiently small degree of the boom is necessary for rent seeking to be facilitated. However, with more than two firms (n>2), rent seeking activities will not happen because profits in collusion will be less than those without collusion in the model. Hence, the paper analyzes rent seeking by concentrating on duopoly results (n=2). The impact of the boom on national income depends on parameter values.

References

  • Auty, R. M. (2001a). The Political Economy of Resource-Driven Growth. European Economic Review, 45(4-6), 839-846. https://doi.org/10.1016/S0014-2921(01)00126-X google scholar
  • Auty, R. M. (2001b). Resource Abundance and Economic Development. Oxford and New York: Oxford University Press. DOI:10.1093/0199275785.001.0001 google scholar
  • Baland, J. M. & Francois, P. (2000). Rent-seeking and resource booms. Journal of Development Economics 61, 527- 542. https://doi.org/10.1016/S0304-3878(00)00067-5 google scholar
  • Bertrand, L., & Céline, Q. (2015). What do we know about the sharing of mineral resource rent in Africa? Resources Policy, 46(2), 239-249. https://doi.org/10.1016/j.resourpol.2015.10.005 google scholar
  • Bello, A., & Cavero, S. (2008). The Spanish retail petroleum: new patterns of competition since the liberalization of the industry. Energy Policy, 36, 612-626. https://doi.org/10.1016/j. enpol.2007.10.014 google scholar
  • Bruno, M., & Sachs, J. (1982): Energy and Resource Allocation: A Dynamic Model of the Dutch Disease. Review of Economic Studies, 49(5), 845-859. https://doi.org/10.2307/2297191 google scholar
  • Caselli, F., & Guy, M. (2013). Do Oil Windfalls Improve Living Standards? Evidence from Brazil. American Economic Journal: Applied Economics, 5(1), 208-238. DOI:10.1257/app.5.1.208 google scholar
  • Cassing, J. H., & Warr, P. G. (1985). The Distributional Impact of a Resource Boom. Journal of International Economics, 18 (3-4), 301-319. https://doi.org/10.1016/0022-1996(85)90057-1 google scholar
  • Chernova, E. G., & Razmanova, S. V. (2018). Development of Competitive Environment at the Oil Market of Russian Federation: Empirical Analysis. Ekonomika regiona [Economy of Region], 14(2), 547-561. DOI: 10.17059/2018-2-17 google scholar
  • Conti'n, I., Correlje', A., & Palacios, B. (2009). Competition, regulation, and pricing behavior in the Spanish retail gasoline market. Energy Policy, 37(1), 219-228. https://doi.org/10.1016/j. enpol.2008.08.018 google scholar
  • Cournot, A. A. (1838). Recherches sur les Principes Mathématiques de la Théorie des Richesses. Paris, France: L. Hachette. google scholar
  • Corden, W. M., & Neary, J. P. (1982). Booming Sector and De-Industrialization in a Small Open Economy. The Economic Journal, 92(368), 825-848. https://doi.org/10.2307/2232670 google scholar
  • Corden, W. M. (1984). Booming Sector and Dutch Disease Economics: Survey and Consolidation. Oxford Economic Papers, New Series, 36(3), 359-380. https://doi.org/10.1093/oxfordjournals. oep.a041643 google scholar
  • Garcia, J. P. (2010). Dynamic pricing in the Spanish gasoline market: A tacit collusion equilibrium. Energy Policy, 38(4), 1931-1937. https://doi.org/10.1016/j.enpol.2009.11.073 google scholar
  • Gillies, A. (2020). Corruption trends during Africa’s oil boom, 2005 to 2014. The Extractive Industries and Society, 7(4), 1171-1181. https://doi.org/10.1016/j.exis.2020.06.006 google scholar
  • Hindricks, J., & Myles, D. G. (2013). Intermediate Public Economics. 2nd ed., Cambridge, MA: MIT Press, pp. 387- 408. google scholar
  • Kolstad, I., & Wiig, A. (2009). It’s the rents, stupid! The political economy of the resource curse. Energy Policy, 37(12), 5317-5325. https://doi.org/10.1016/j.enpol.2009.07.055 google scholar
  • Lane, P.R., & Tornell, A. (1996). Power, growth and the voracity effect. Journal of Economic Growth, 1, 213- 241. https://doi.org/10.1007/BF00138863 google scholar
  • Muradov, A. (2022). Energy Sector’s Monopoly Rent-seeking and Supplementary Time-series Analysis in the Case of Azerbaijan. Anadolu University Journal of Faculty of Economics, 4(1), 3649. https://doi.org/10.54737/aujfe.1065684 google scholar
  • Neary, J. P., & Wijnbergen, S. (1984). Can Higher Oil Revenues Lead to a Recession? A comment on Eastwood and Venables. Economic Journal, 94, 390-395. https://doi.org/10.2307/2232359 google scholar
  • Ogbuabor, J. E., God’stime, O. E., Charles, O. M., & Ifeoma, C. M. (2018). Asymmetric Price Transmission and Rent seeking in Road Fuel Markets: A Comparative Study of South Africa and Selected Eurozone Countries. African Development Review, 30(3), 278-290. https://doi.org/10.1111/1467-8268.12336 google scholar
  • Ogbuabor, J. E., & Onuigbo, F. N. (2018). Are There Problems of Asymmetric Price Adjustment and Rent-Seeking in Spanish Retail Diesel Market? Saudi Journal of Economics and Finance (SJEF), 2(6), 376-381. Retrieved from https://www.saudijournals.com/media/articles/SJEF-26-376-381-c.pdf google scholar
  • Ogbuabor, J. E., & Onuigbo, F. N. (2019). Response of Italian Domestic Heating Oil Market to Variations in Crude Oil Costs: Symmetric or Asymmetric? Journal of Energy Technologies and Policy, 9(2). DOI: 10.7176/JETP/9-2-02 google scholar
  • Ogbuabor, J. E., Anthony, O., & Onyinye, I. A. O. (2020). Are anticompetitive behaviors rampant in global retail energy markets? A study of price elasticity, asymmetric price adjustment and rent-seeking.Energy Research & Social Science, 70, 101783. https://doi.org/10.1016/j. erss.2020.101783 google scholar
  • Tornell, A., & Lane, P.R. (1999). The voracity effect. American Economic Review, 89, 22-46. DOI: 10.1257/aer.89.1.22 google scholar
  • Torvik, R. (2002). Natural resources, rent seeking and welfare. Journal of Development Economics, 67, 455-470. https://doi.org/10.1016/S0304-3878(01)00195-X google scholar
  • Tullock, G. (1967). The Welfare Costs of Tariffs, Monopolies, and Theft. Western Economic Journal (now Economic Inquiry), 5, 224-232. https://doi.org/10.1111/j.1465-7295.1967.tb01923.x google scholar
  • Van der Ploeg, F. (2010). Why do many resource-rich countries have negative genuine saving?: Anticipation of better times or rapacious rent seeking. Resource and Energy Economics, 32 (1), 28-44. https://doi.org/10.1016/j.reseneeco.2009.07.002 google scholar
  • Van der Ploeg, F. (2011). Curse or Blessing? Journal of Economic Literature, 49(2), 366-420. DOI: 10.1257/jel.49.2.366 google scholar
  • Vicente, P.C. (2010). Does oil corrupt? Evidence from a natural experiment in West Africa. Journal of Development Economics, 92(1), 28-38. https://doi.org/10.1016/j.jdeveco.2009.01.005 google scholar
There are 30 citations in total.

Details

Primary Language English
Subjects Business Administration
Journal Section Research Article
Authors

Anar Muradov 0000-0002-5259-4424

Publication Date January 18, 2023
Submission Date January 26, 2022
Published in Issue Year 2022

Cite

APA Muradov, A. (2023). Natural Resources and Rent Seeking Collusion in the Context of Dutch Disease. İstanbul İktisat Dergisi, 72(2), 599-623. https://doi.org/10.26650/ISTJECON2022-1063190
AMA Muradov A. Natural Resources and Rent Seeking Collusion in the Context of Dutch Disease. İstanbul İktisat Dergisi. January 2023;72(2):599-623. doi:10.26650/ISTJECON2022-1063190
Chicago Muradov, Anar. “Natural Resources and Rent Seeking Collusion in the Context of Dutch Disease”. İstanbul İktisat Dergisi 72, no. 2 (January 2023): 599-623. https://doi.org/10.26650/ISTJECON2022-1063190.
EndNote Muradov A (January 1, 2023) Natural Resources and Rent Seeking Collusion in the Context of Dutch Disease. İstanbul İktisat Dergisi 72 2 599–623.
IEEE A. Muradov, “Natural Resources and Rent Seeking Collusion in the Context of Dutch Disease”, İstanbul İktisat Dergisi, vol. 72, no. 2, pp. 599–623, 2023, doi: 10.26650/ISTJECON2022-1063190.
ISNAD Muradov, Anar. “Natural Resources and Rent Seeking Collusion in the Context of Dutch Disease”. İstanbul İktisat Dergisi 72/2 (January 2023), 599-623. https://doi.org/10.26650/ISTJECON2022-1063190.
JAMA Muradov A. Natural Resources and Rent Seeking Collusion in the Context of Dutch Disease. İstanbul İktisat Dergisi. 2023;72:599–623.
MLA Muradov, Anar. “Natural Resources and Rent Seeking Collusion in the Context of Dutch Disease”. İstanbul İktisat Dergisi, vol. 72, no. 2, 2023, pp. 599-23, doi:10.26650/ISTJECON2022-1063190.
Vancouver Muradov A. Natural Resources and Rent Seeking Collusion in the Context of Dutch Disease. İstanbul İktisat Dergisi. 2023;72(2):599-623.