How Mineral - Rich States Can Reduce In e qual ity

What should governments in mineralrich states do about the gap between rich and poor populations (vertical in e qual ity), and the gap between mineralrich and mineralpoor regions (horizontal in e qual ity)? This chapter looks at how mineral wealth can affect vertical and horizontal in e qual ity, and what governments can do about it. It also explores the advantages and disadvantages of the decentralization of mineral revenues, and offers a series of guidelines for states that seek to better manage the distributional problems caused by mineral booms. I N T R O D U C T I O N If we use a broad mea sure of development progress—changes in child mortality rates between 1970 and 2000—we fi nd enormous variation in the per for mance of oiland gasexporting states (fi gure 9.1). Indeed, oil and gas exporters tend to have more varied outcomes than nonexporters: as the dependence of countries on oil, gas, and other mineral exports rises, so does the variation among states in development outcomes. Oil and gas revenues seem to magnify the ability of governments to do both good and bad things for their citizens. One key to success is managing the impact that mineral rents have on the distribution of income—both the “vertical” (between rich and poor) and the “horizontal” (across regions of a country) distributions of income. Both kinds of in e qual ity can be harmful: high levels of vertical in equal ity may retard development, and can reduce the povertyalleviating powers of economic growth (Easterly 2002; World Bank 2001); horizontal 238 HANDLING THE POLITICS inequality—and sudden changes in horizontal inequality—can lead to violent confl ict (Stewart 2000). Surprisingly little is known about the relationship between mineral wealth and vertical income in e qual ity. If one uses what is the perhaps the most common mea sure of income inequality—the “Gini” coeffi cient— one fi nds that a country’s dependence on mineral wealth appears to be uncorrelated with in e qual ity. Resourcerich countries appear to be neither more nor less unequal, on average. But in fact there are good reasons not to draw strong conclusions from the lack of a simple relationship between in e qual ity and mineral wealth. First, data on income in e qual ity are missing for most of the world’s oildependent countries. In fact, as can be seen in fi gure 9.2, there is a strong negative relationship between a country’s dependence on mineral rents and the amount of data we have about its in e qual ity levels. Second, there are other dimensions of in e qual ity that are not captured by standard in e qual ity data and for which we also lack data—particularly income in e qual ity between groups: such as between rural and urban workers, and between men and women. A great deal of research remains to be done. 0 .6 .8 1 0 .5 1 2 2. 5 Mineral Rents / GDP 1970–2000 R ed u ct io n s in C h ild M o rt al it y R at es