A Review of The New York TImes Article with Actual Data, not Heresay

A Review of The New York TImes Article with Actual Data, not Heresay

Nesian
Nesian

November 7th, 2010, 4:48 pm #1

Much as I am loathe to copy and paste an argument, please have a look at this article which examines the claim in the NYT. I find it be more nuanced and realistic.

Apollogies for not being able to include the graphs, you will have to follow the link if you want to see them.

-Nessie-

LINK:http://www.plawlotic.com/?p=89

Resource Curses Next Victim: Papua New Guinea?2
By Victor Menaldo
Papua New Guinea is a small island nation in the South Pacific (Oceania), a region of the world that contains 29 countries and dependent states covering approximately 9,000,000 sq km (3, 475,000 square miles), with a population of about 35.8 million. It made news today when the NY Times reported today that Papua New Guinea could be the next victim of the so-called resource curse.
In 2014, ExxonMobil is scheduled to start shipping natural gas through a 450-mile pipeline, then on to Japan, China and other markets in East Asia. But the flood of revenue, which is expected to bring Papua New Guinea $30 billion over three decades and to more than double its gross domestic product, will force a country already beset by state corruption and bedeviled by a complex land tenure system to grapple with the kind of windfall that has paradoxically entrenched other poor, resource-rich nations in deeper poverty.
Lets examine the claims made by the NY Times.
First, the Times claims that economic development in Papua New Guinea has been partially due to its increasing income from natural resources, especially natural gas.
Here in Tari the largest town closest to the gas fields but really just a series of squat buildings surrounding a recently fenced-off airstrip a separate tribal war has given way to new businesses.
No one from the outside dared to come to Tari two years ago, said Peter Muli, 37, whose chicken restaurant, House-Kai, is now thriving.

To see if this is indeed the case, above I graph the trajectory of Papua New Guineas economic development since independence in 1975, along with the trajectory of its income from natural resources (in Per Capita terms). The latter includes income from precious metals, natural gas and oil. In Papua New Guineas case, it is rich in copper, gold and natural gas, as the NY Times article pointed out. Both variables are from Haber and Menaldo (2010).
The NY Times seems to be onto something: GDP Per Capita and Natural Resources Income indeed move together over time, and both are tending to move upward.
But what about the claim that increased income from natural resources equals increased corruption?
Author Norimitsu Onishi hints at this in his article:
While conceding the danger of social disruptions, Papua New Guinea officials are adamant that the windfall will be used for development and not siphoned off by the well connected. Mr. ONeill, the finance minister, said the government planned to channel the revenue into three sovereign wealth funds that would be overseen by a board of advisers, including foreigners, adding that the government would also be held accountable by the World Bank and other creditors.
But Michael McWalter, a former director of the petroleum division at the Department of Petroleum and Energy and a current adviser, said that corruption permeated the countrys political establishment and bureaucracy.
Whether they will put the money into a revenue fund and steal it all in one go, I dont know, said Mr. McWalter, who is also a director of Transparency International here.
Should we really have grounds to fear that increased income from natural gas will stimulate increased corruption in Papua New Guinea? In order to make an educated guess, we can again turn to the history of Papua New Guinea. Particularly, we can graph its level of corruption, or a close proxy, and its income from natural resources.
The ICRG Indicator of the Quality of Government is the average of three sub-indices: the Corruption, Law and Order, and Bureaucracy indexes. Each is based on subjective perceptions about the prevalence of corruption in the public sector, how professional the bureaucracy is, and respect for the rule of law. While each of these components is measured on a 6 point scale, the ICRG index is normalized to run from 0 to 1, with 1 denoting the best institutions.

As we can see from the graph above, Papua New Guineas quality of government declines for the first time, from a high of 6.4 to 5.8, in the wake of a big fall in the countrys income from natural resourcesa nearly 33% drop in 1989. This was due to the closure of the Bougainville copper mine and was the direct result of a local insurrection in that region. In other words, corruption was on the rise only AFTER income from natural resources plummeted. The same type of story recurs between 1996 and 2001: Papua New Guineas quality of government falls, and conversely corruption increases, only AFTER a massive fall in its income from natural resources due to a collapse in copper prices. In 1993 Papua New Guineas income from natural resources reaches a peak of $624, only to plummet over the next few years, eventually reaching a through of only $288 in 2002.
In short, increases in corruption over Papua New Guineas recent history appear correlated with decreases in income from natural resources. Not the other way around.
Of course, visual correlation does not equal causation. First of all, we are not controlling for any common trends in the data, nor serial correlation. Therefore, that is what I do below: I run a regression that includes a linear time trend and addresses serial correlation via a Newey West adjustment to the residuals.

The coefficient on Total Resources Per Capita is, as opposed to the fears of the NY Times article, positive and highly statistically significant! The magnitude of the coefficient is not great, however: an increase of $1000 in resource income per capita only induces a .23 increase in the ICRG Index. In other words, increased reliance on natural resources REDUCES corruption.
Of course, these results are still not tantamount to causation, since I have not controlled for time-varying factors that may possible confound the relationship.
Below I control for Per Capita Income:

The positive relationship weakens, to be sure, but is still present.
I hasten to emphasize that this result is still not tantamount to causation. I have not addressed the fact that:
Increased government effectiveness could lead to increased reliance on resources.
There are several factors that drive government effectiveness that have been omitted from the model and that could be correlated with Natural Resource Income.
The data may be non-stationary.
The relationship between natural resource reliance and corruption may be non-linear.
However, it is highly unlikely that the relationship between natural resource reliance and corruption over Papua New Guineas history is positive, as intimated by the NY TIMES. What is more likely is that there is no systematic relationship, or that the relationship is negative but weak.
Finally, I should also note that throughout its short history as a sovereign state, Papua New Guinea has remained highly democratic, despite increasing reliance on natural resources.
So, you be the judge: are natural resources a curse or a blessing to the people of New Guinea?
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Statistics can always be made to distort
Statistics can always be made to distort

November 17th, 2010, 10:35 pm #2

This is actually complete nonsense because it is very clear that statistics are general and cover up the greater impoverishment that is actually happening in our country. You never saw beggars in the streets in our towns a generation ago. You never saw so many people struggling to make a few toea selling smokes and other small items on the street before. The visual evidence is overwhelming and no number of graphs will cover that up..


The fact is that the LNG project will do to PNG what large petroleum projects have done to Nigeria, Mexico, Indonesia, and most other oil producing countries. The large amount of money coming to landowners will simply be wasted, not invested. It's like putting a kid in a room full of lollies and toys. The large amount of money coming into the government from the LNG project will guaranteed be stolen, either more directly or hidden away in overseas trust accounts where no one can see the money being drained. The rich will get richer while the poor get poorer and your statistics will show an upward climb in economic worth because the small number of wealthy will be filthy rich.

Anyone who thinks that the most profitable company in the world by far (ExxonMobil) whose obscene profits in just 1 quarter have somtimes have been enough to run our entire country for years has got their head in the sand if they think PNG is going to benefit more from the PNG gas than ExxonMobil or the countries where this gas s going to fuel factories, major industry and tens of thousands of jobs.

Guess what? The LNG project, once it is on line, is estimated to only create a few hundred (not thousand) permanent jobs). The long-term change will be in the money going to the government and (to a much lesser extent) to customary landowners. The landowners will spend all their money on imported items and just send that money back overseas into the hands of foreigners. How can one call that process economic development?
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Stret Toka
Stret Toka

November 18th, 2010, 6:26 am #3

You make a good point about statistical data....you only have to look at how the CLIMATE CHANGE data was manipulated and exagerated to create a fear campaign which only gives it less credibility and erodes the support it once had.

The New York Times......well who is a major sponsor of the NYT....the big oil companies and it makes sense for these oil companies to manipulate data to suit there own agenda...ie making themselves look good in the eye of the public.

The data doesnt really address the informal sector and how everyday grassroots support themselves, and the truth behind the massive impoverishment in PNG.

A nice try but it clearly shows that the data was created to support the mining industry agenda.
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Nesian
Nesian

December 1st, 2010, 3:27 pm #4

This is actually complete nonsense because it is very clear that statistics are general and cover up the greater impoverishment that is actually happening in our country. You never saw beggars in the streets in our towns a generation ago. You never saw so many people struggling to make a few toea selling smokes and other small items on the street before. The visual evidence is overwhelming and no number of graphs will cover that up..


The fact is that the LNG project will do to PNG what large petroleum projects have done to Nigeria, Mexico, Indonesia, and most other oil producing countries. The large amount of money coming to landowners will simply be wasted, not invested. It's like putting a kid in a room full of lollies and toys. The large amount of money coming into the government from the LNG project will guaranteed be stolen, either more directly or hidden away in overseas trust accounts where no one can see the money being drained. The rich will get richer while the poor get poorer and your statistics will show an upward climb in economic worth because the small number of wealthy will be filthy rich.

Anyone who thinks that the most profitable company in the world by far (ExxonMobil) whose obscene profits in just 1 quarter have somtimes have been enough to run our entire country for years has got their head in the sand if they think PNG is going to benefit more from the PNG gas than ExxonMobil or the countries where this gas s going to fuel factories, major industry and tens of thousands of jobs.

Guess what? The LNG project, once it is on line, is estimated to only create a few hundred (not thousand) permanent jobs). The long-term change will be in the money going to the government and (to a much lesser extent) to customary landowners. The landowners will spend all their money on imported items and just send that money back overseas into the hands of foreigners. How can one call that process economic development?
To misquote Laurence Tureaud, that esteemed moral philosopher, all I can say is, "I pity the fools".

This is my immediate response to the posts responding to my original rebuttal of the New York Times post, what I merely wanted to point out was that we shouldn't just assume that Papua New Guinea will fall into the resource curse trap of old and therefore cling to colonial remnants of a time long gone wherein we merely supply our old allies and sit in comfort next to the glowing embers of our status quo.

The article I linked to and copy-and-paste dumped was an alternative appreciation of the data at hand. The people who would not want us to change and therefore eschew the chance of anything resembling development are the ones who are benefiting most from the current state of affairs. True that we might be taking a big risk by signing our souls away on what may essentially be document of equal value to a scrap of used toilet paper by entering into these deals with Exxon and whatever corporate stooge the PRC is using but at least it is risk justified by the current state of our progress.

You can't even hope to lift yourself up from your bootstraps if you won't even put on any footwear in the first place because the last pair you had on were too tight or think that shoes are for westerners and we should be proud of our calussed bear feet. I apologise for the extended metaphor but that's how serious I am.

The reason why you see so many more people selling cigarettes and buai at the bus stops as you drive to work is because they to have a tonne of ambition but an ounce of resource as opposed to those in air conditioned offices where the vice versa applies. Do you really think people sell things on the side of roads because they like the smell of exhaust fumes!?

The reason there are more people begging in the streets are not because the people in the cities have become poorer, it is people in the villages come to the city wanting more. Do we tell them, "NO, you go back, you belong where you are and I belong where I am"? No, far from it, we should encourage them and help them to achieve there full potential with whatever funds available and if funds are not available than sign that piece of paper, take my soul and give me that opportunity to succeed.

So what if the facilities and amenities in the cities are not available, the only way to make it so that is the case is to have the population here to force the government and local authorities into action. Do you think any of the major cities in the world, your Londons, your New Yorks and your Tokyos were built with all the proper housing, waste treatment facilities, power grids and public parks before the masses were invited in for habitation?

Get real, but more importantly don't get used to it.
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K-y
K-y

December 3rd, 2010, 9:35 pm #5

Most people who are here don't get used to the problems we see in the cities, they either escape it and escape PNG or are hoping to. and BTW no one sold smokes on the streets of POM until the kina was devaluated, prices went up, and people were instantly made poorer. It had little to do with initiative and everything to do with increased desperation.
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