Political economy perspectives enable us to scan country and sector environments for opportunities to leverage existing positive drivers of change–as well as to make realistic estimations of the risks and challenges involved.
This implies taking the incentives of individuals and of groups more seriously–rather than thinking about reforms predominantly from a public welfare perspective.
The implications of political economy work may not always be comfortable, and the analytic understanding of political economy drivers must be followed up by actually doing things differently.
But such a perspective is precisely the crucial first step in making aid–provided by the Bank as well as by other international development agencies–more effective in an increasingly challenging and complex environment.
The overall impact of the mining sector was much stronger if there were infrastructure benefits and strong linkages to other industries, especially through domestic procurement.
Contrary to the notion that there are no jobs in mining, in this small sample, employment related to the mining sector was very high in countries where linkages were strong, even before the multiplier and fiscal expenditure impacts were accounted for.Many low and middle-income mineral-rich countries have experienced strong growth for a decade or longer, propelled by a rapid expansion of their mineral exports and a rise in prices of these commodities.This sustained strong economic performance goes against the accepted wisdom that even though the mining sector, like other extractive industries, can generate foreign exchange and fiscal revenues, it contributes little to sustained economic growth and, by extension, human development.Political economy perspectives can help to calibrate where best to apply the Bank’s strengths–technical knowledge, convening power, and financing–and identify how to work towards strengthening both the supply of and the demand for better governance and governments.Over the past few years, we have started to learn how to use political economy analysis in an operationally targeted way to improve development effectiveness.Are we able to broker compromises between vested interests and upstart entrepreneurs to improve regulatory environments and infrastructure bit by bit?Can we become more serious about taking public opinion and citizens’ concerns into account in calibrating and communicating reforms—so that we are able to reinforce the demand for change, rather than triggering anti-reform protests?Through the presentation of trends and patterns of various indicators, this paper shows that in addition to economic growth, countries rich in minerals other than oil have experienced significant improvements in their human development index (HDI) scores that are on average better than those experienced by countries without minerals.In a sample of five low and middle-income countries with relatively long histories of mining, benefits came from foreign direct investment (FDI), export revenues, and fiscal revenues.A chain of insights drives the growing interest in political economy analysis: First, there is the fact that reforms often fail even when solutions that would improve public welfare are available.Abolishing fuel subsidies in Nigeria is proving hard, even though the subsidy regime is both inefficient and unfair for the vast majority of poorer citizens.