Social Protection in Resource-Rich Low-income Countries

Background paper to the ERD 2010

Authors

Prof. Paul Collier, Centre for the Study of African Economies, Department of Economics, Oxford University

Workshop/conference

Paper prepared for the Workshop “Experiences and Lessons from Social Protection Programmes
across the Developing Word: What Role for the EU?” organised by the European Report on
Development in Paris, 17-18 June 2010

Abstract

Revenues from natural resources are increasingly important for low-income countries. Such countries have both distinctive needs for social protection and distinctive capacities to provide it. The distinctive needs come partly from localized damage during the physical process of extraction, and partly from the macroeconomic repercussions of valuable natural resource exports, namely Dutch disease and volatility. The paper reviews strategies for each of these needs for social protection but focuses particularly on coping with volatility. It suggests that there is greater scope for international risk-pooling, but that domestic cushioning through varying the rate and composition of investment is likely to be critical. The paper proposes that resource-rich countries need a menu of implementable public investment projects which incorporate two distinct shadow wages, one for cyclical peaks and one for troughs.

The distinctive capacities come partly from the greater availability of public revenues and partly from the lack (relative to other countries at similar levels of per capita income) of prior investment in an effective bureaucracy. While there is also some scope for targeted social relief programmes, resource-rich countries risk committing to levels of protection during booms that cannot be financed when they are needed during slumps. Those countries able to finance service delivery but not able to deliver it effectively through their public bureaucracy may need to develop systems for financing non-state delivery mechanisms.

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