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Distributional Bargaining and the Speed of Structural Change in the Petroleum Exporting Labor Surplus Economies

  • Sadik-Zada Elkhan Richard Email author
Original Article
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Abstract

We embed the distributional bargaining concept in Sir Arthur Lewis’s labor surplus economy setting. In the petroleum-abundant labor surplus economies, distributional bargaining comes into its own, mainly over the subsidization of the large swaths of the population working in the sectors with substantial amounts of disguised unemployment. These are primarily the subsistence agriculture and the public sector. Based on the open-loop noncooperative differential game model, we derive three feasible bargaining equilibria, whereby only the antagonistic and the allocation modes are compatible with the setting of inferior institutional quality that dominates most natural-resource-dependent countries. We scrutinize both modes in the framework of the dual economy model and show that political bargaining in the allocation mode unambiguously protracts the process of economic modernization. The outcome of the antagonistic mode for the process of structural change depends on the magnitude of the labor cost increase in this phase. To assess the bargaining–modernization nexus empirically, we employ mostly pooled mean group (PMG) estimators for panel datasets spanning the years 1990–2016 for 21 oil-producing countries. For the system generalized method of moments (GMM) panel estimations, we employ a panel with 82 countries. We find that the revenues generated from exports of natural resources have a positive long-run impact on the economic modernization. Consistent with our theoretical model, the interaction of the authoritarian regime type with the natural resource wealth has a robust negative impact on the indicators of economic modernization.

Keywords

Distributional bargaining Surplus labor Open-loop Nash equilibrium Structural change Pooled mean group (PMG) estimator 

Résumé

Dans cet article, nous intégrons la notion de négociation distributive dans l’économie disposant d’un surplus main-d’œuvre décrite par Sir Arthur Lewis. Dans les économies qui disposent d’un surplus de main-d’œuvre et qui sont riches en pétrole, les négociations distributives deviennent incontournables, principalement quand il s’agit de financer de larges groupes de population travaillant dans les secteurs caractérisés par un taux de chômage déguisé important. Ce sont principalement le secteur de l’agriculture de subsistance et le secteur public. Sur la base du modèle de jeu différentiel non coopératif en boucle ouverte, nous obtenons trois équilibres de négociation réalisables, dans lesquels seuls les modes antagoniste et d’allocation sont compatibles avec la qualité inférieure des institutions qui domine la plupart des pays dépendant des ressources naturelles. Nous examinons les deux modes par le prisme du modèle de l’économie duale et montrons que la négociation politique dans le mode d’allocation retarde sans aucun doute le processus de modernisation économique. Le résultat du mode antagoniste relatif au processus de changement structurel dépend de l’ampleur de l’augmentation du coût de la main-d’œuvre au cours de cette phase. Pour évaluer empiriquement le lien entre la négociation et la modernisation, nous utilisons principalement les estimations de la moyenne de groupe agrégée (PMG) pour des données de panel couvrant la période de 1990 à 2016 pour 27 pays producteurs de pétrole. Pour les estimations de panel par la méthode des moments généralisés (MMG) en système, nous utilisons un panel de 85 pays. Nous constatons que les revenus générés par les exportations de ressources naturelles ont un impact positif à long terme sur la modernisation économique. Conformément à notre modèle théorique, l’interaction entre des régimes de type autoritaires et la richesse en ressources naturelles a un impact négatif considérable sur les indicateurs de modernisation économique.

JEL Classification

D72 O13 O16 O43 Q33 

Notes

Acknowledgements

I am grateful to Professor Wilhelm Loewenstein from Ruhr-Universität Bochum and Dr. Kamiar Mohaddes from the University of Cambridge for their fruitful comments.

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Copyright information

© European Association of Development Research and Training Institutes (EADI) 2019

Authors and Affiliations

  1. 1.Institute of Development Research and Development PolicyRuhr-Universität BochumBochumGermany
  2. 2.Faculty of Economics (Visiting)University of CambridgeCambridgeUK

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