Institutions, Violent Conflict, Windfall Gains and Economic Development in Africa

Institutions, Violent Conflict, Windfall Gains and Economic Development in Africa Maarten Jan Voors Thesis committee Thesis supervisor Prof. dr. ir. E.H. Bulte Professor of Development Economics Wageningen University, the Netherlands Other members Prof. dr. ir. T. Hilhorst, Wageningen University, the Netherlands Dr. A. Kontoleon, University of Cambridge, United Kingdom Prof. dr. ir. S.M. Murshed, Erasmus University Rotterdam, the Netherlands Prof. dr. ir. F. van der Ploeg, University of Oxford, United Kingdom This research was conducted under the auspices of the Wageningen School of Social Science (WASS). Institutions, Violent Conflict, Windfall Gains and Economic Development in Africa Maarten Jan Voors Thesis submitted in fulfillment of the requirements for the degree of doctor at Wageningen University by the authority of the Rector Magnificus Prof. dr. ir. M.J. Kropff, in the presence of the Thesis Committee appointment by the Academic Board to be defended in public on Wednesday November 16, 2011 at 4 p.m. in the Aula. Maarten Jan Voors Institutions, Violent Conflict, Windfall Gains and Economic Development in Africa 166 pages Thesis, Wageningen University, Wageningen, NL (2011) With references, with summaries in Dutch and English ISBN 978-94-6173-102-9 Dedicated to my parents Table of Content Chapter 1 Introduction 1 Chapter 2 Institutions, Violent Conflict, Windfall Gains and Economic 7 Development Chapter 3 Income Shocks and Corruption in Africa: Does a Virtuous Cycle 17 exist? Chapter 4 Conflict and the Evolution of Institutions: Unbundling 35 Institutions at the Local Level in Burundi Chapter 5 Violent Conflict and Behavior: a Field Experiment in Burundi 59 Chapter 6 Peasant Grievance and Insurgency in Sierra Leone: Judicial 95 Serfdom As a Driver of Conflict Chapter 7 Experiments and the Incentives for Conservation: Using 121 Artefactual Field Experiments to Learn about the Incentives for Sustainable Forest Use in Developing Economies Chapter 8 Behavior in Context-Free Experiments is not Predictive of 129 Behavior in the Field: Evidence from Public Good Experiments in Rural Sierra Leone Chapter 9 Discussion 137 References 146 Summary 162 Samenvatting 164 Acknowledgements 166 Chapter 1 Introduction About three decades ago, in 1978, the first World Development Report, was written in an effort to provide an in-depth analysis of development and make policy recommendations aimed to call governments and non-governmental agencies worldwide to action (see Yusuf, 2009). Since then, 33 World Development Reports have been written, covering a diverse set of topics deemed important for development: ranging from the role of agriculture, governance, the environment, health, poverty and equity to the role of geography, climate change and civil war. In the course of the past decades, the fortunes of developing economies have meandered, and the impact of foreign policy and development assistance has been subject to a heated debate (Easterly 2009). The first World Development Report could not have come at a more crucial time. The mid-1970s marked the start of what was later referred to as Africa’s growth tragedy1 – the stagnation and decline of living standards for nearly a billion people over the three subsequent decades. In the post WWII years, many African countries saw development take off, but after 1975 their fortunes changed and across the board incomes steadily declined: average living standards across Africa dropped by about 20 percent (see Figure 1). The African growth collapse is seen as one of the greatest economic disasters of the late twentieth century (Easterly and Levine 1997). To understand the causes of Africa’s recession several, candidate explanations have been advanced: ranging from geographical impediments to a crisis in policy. Yet, while these explanations have provided useful insights and perspectives, they fall short to explain the heterogeneity in the growth path of most African nations; some countries only suffered a weak recession, while others saw living standards decline dramatically. For example, the economy of Botswana grew steadily over the past decades, yet why has the economy of Liberia predominantly declined? And why has economic growth in Rwanda been so high following the end of the civil war while growth in neighboring Burundi is still sluggish? Why has Cote d’Ivoire plunged back into fighting and has Ghana escaped civil war since Independence? As will be argued, the answers to these questions are inherently complex as a multitude of factors interact and depend on time and country. 1 Whenever the term Africa is used, I refer to sub-Saharan Africa. 1 Figure 1. Per capita GDP for Burundi, Sierra Leone and sub-Saharan Africa average2 Figure 1 shows the development of per capita income during 1960 – 2005 for Africa and for two individual countries, which are the main focus of this thesis: Burundi and Sierra Leone. While different in many accounts - Burundi is a resource poor, densely populated country in East Africa and Sierra Leone, a resource rich, land abundant country on Africa’s West coast – there are parallels in their history. Both have been theatres of excessive violence in civil war, know widespread poverty and rank at the bottom of almost any human development indicator. Economically, Burundi and Sierra Leone knew steady increases in per capita incomes between 1950 and the late-1970s. Yet, in the early 1980s economic growth in Sierra Leone slowed due to a decline in diamond mining and increased corruption. In the decade that followed economic activity declined even further, and in the early 1990s the country became engulfed in a brutal civil war that lasted until 2002. By that time the economy was in shambles, having reached a historical low. Across the East, Burundi followed a similar path of development with steady, albeit lower, economic growth until the early 1990s, when ethnic tensions exploded and a 10- year civil war between the countries main ethnic groups (Hutu and Tutsi) broke out. Currently, a decade after the civil wars ended, economic growth in both countries is slowly taking root and improvements on many development indicators can be seen. This recent positive income trend is in line with development elsewhere in the continent (Figure 1). Many African countries started to recover in the mid-1990s and there is reason to believe that this trend will continue. For one, the prices of important commodities, such as oil, minerals and agricultural produce have risen. In part this growth is accounted for by an increased demand from the rapidly growing economies in 2 Authors calculations based on World Bank Indicators 2011 2 Asia (mainly China and India). Not only demand has increased. Asian investments in resource extractive activities (such as oil and minerals) and public goods (roads, dams, telecommunication, etc) have shot up dramatically also. At the same time, many civil wars have ended: at the moment for the first time in 50 years, more African countries are at peace than at war (Nkurunziza 2008). Indeed, from a quick glance at Figure 1, incomes in Africa seem to be improving. Yet the picture is not as positive as it would seem: while growth has gone up, the fraction of people living below the poverty line has gone up too (Ivanic and Martin 2008). As many African households (especially in urban centers) are net buyers of food, increased food prices have put a heavy weight on many people’s budget. This trend is likely to continue in the future. One estimate shows that food production will have to rise by 70% in order to keep pace with population growth (Economist 2011). It is uncomforting to note that increased poverty levels provide an exacerbating risk for the outbreak of civil war (Collier and Sambanis 2005, Fearon and Latin 2005). Testimony of the fragile state of many African countries is the outbreak of recent violence in Cote d’Iviore, the divide of North and South Sudan and the constant re-emergence of violence in Uganda and the DRC. Many development practitioners and academics have attempted to explain (under) development in Africa and the role of demographics, natural resources, institutions, civil wars, etc therein. Testimony are the wide range of topics covered in the World Development Report pages. These themes signal the state of thinking about development and show that the answers proposed have changed over time. The first decades of development thinking were motivated by the Washington Consensus, where a central role was reserved for the functioning of markets. This view on development attracted criticism from people pointing to the pivotal role institutions play in development. As a response, in the past decade development thinking has moved to a post-Washington Consensus stage where the main emphasis is on institutions and governance (Rodrik et al. 2004). Academic literature too has increasingly pointed to the quality of institutions as the main driver of (under) development across the world (Acemoglu, et al. 2005). At the same time, it is recognized that institutions themselves endogenous to economic development and a growing body of literature seeks to understand the factors shape them (Williamson 2000, Rodrik et al. 2004). Yet, even though aid transfers have become conditional on improvements in institutions, such as the reduction of corruption and 3 improving the freedom of speech and political expression, how to improve institutions and promote development remains an open question. This is alarming, as the structural factors related to development: food prices, climate change, resource rents, civil wars, etc are expected to become more problematic (APR 2011). At the same time, the role of aid in development has been a polemical debate between its proponents and its adversaries, arguing about the proper scope of international development assistance. These views range from grand transformational approaches based on a blueprint development programs (such as the Millennium Development Goals initiative advanced by Jeffrey Sachs) to incremental approaches looking at piece meal development possibilities (see Easterly 2006).

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