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

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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.

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.

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Fig. 1

(cf. Bender 2012)

Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7

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Notes

  1. We refer to authoritarian, distributional, autocratic, and political bargaining interchangeably. This is also the case in our usage of the notions of elite, state elite, and ruling elite, as well as the notions of autocracy, dictatorship, and authoritarian regime.

  2. We do not scrutinize here the relation between this subsistence income level and the concept of the poverty line, or definitions and measurements of subsistence-level consumption. For theoretical discourse on and empirical methodology to determine subsistence-level consumption, see Sharif (1986), Steger (1998, 2000), and Loewenstein and Bender (2017).

  3. For more on the foundations of this compensation system, see Lewis (1954), Bender (2009), Loewenstein and Bender (2017) and Schäfer (1983).

  4. The model does not give a clue about the causes of industrialization. Nevertheless, there are myriad possible causes, which could result in the emergence of capitalist production in a developing country, including FDI which is attracted mainly due to the abundance of labor force, raw materials, existence of unique crops etc., venture capital, foreign aid for the development of local manufacturing, natural resource revenues and their reinvestment in local industrialization, etc.

  5. The additional charge factor of 1.3 has no empirical or theoretical foundations.

  6. For a comprehensive discussion on this assumption, see Sadik-Zada and Loewenstein (2018).

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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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Authors and Affiliations

  1. Institute of Development Research and Development Policy, Ruhr-Universität Bochum, Bochum, Germany

    Sadik-Zada Elkhan Richard

  2. Faculty of Economics (Visiting), University of Cambridge, Cambridge, UK

    Sadik-Zada Elkhan Richard

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Appendices

A.1: Panel Unit Root for the Dependent and Explanatory Variables, 1990–2016

All countries (27)

Im–Pesaran–Shin test with AIC lag selection criterion

Fisher-type test with AIC lag selection criterion

Pesaran’s panel unit root test in presence of cross-sectional dependence \({\text{lag}}\;{\text{order}} = 4 \times \left( {\frac{26}{100}} \right)^{2/9} \approx 3\)

Order of integration

Statistic

p value

Statistic

p value

Statistic

p value

Manufacturing value added (% GDP)

−3.6388

0.0001

110.1903

−2.4336

−3.2255

5.4069

0.0000

0.0075

0.0000

0.0000

3.431

1.000

I(0)

Manufacturing value added (annual % growth)

−27.4663

0.0000

218.3915

−11.2415

−12.8326

18.5902

0.0000

0.0000

0.0000

0.0000

0.089

0.535

I(0)/I(0)/I(1)

∆Manufacturing value added (annual % growth)

    

−4.316

0.0000

 

Total nonresource revenue (% of GDP)

−0.7344

0.2313

162.7149

−8.2469

−8.6601

11.2715

0.0000

0.0000

0.0000

0.0000

4.955

1.000

I(0)/I(0)/I(1)

∆Total nonresource revenue (% of GDP)

    

−3.101

0.0000

 

Total resource revenue (% of GDP)

0.8688

0.8075

71.2301

−4.1509

−3.9572

3.8118

0.0009

0.0000

0.0001

0.0001

4.803

1.000

I(0)/I(0)/I(1)

∆Total resource revenue (% of GDP)

    

−3.721

0.000

 

Political rights index

−0.9717

Insufficient number of time periods to compute W-t-bar

0.1656

64.2922

−0.9235

−1.0497

1.2053

0.1178

0.1779

0.1479

0.1140

0.369

0.644

I(1)/I(1)/I(1)

∆Political rights index

−26.6504

0.0000

847.2564

−26.3651

−45.9777

77.9813

0.0000

0.0000

0.0000

0.0000

−6.254

0.000

 

Civil liberties index

−3.8964

0.0000

249.9154

−11.3274

−13.1894

18.8520

0.0000

0.0000

0.0000

0.0000

  

I(0)/I(0)/I(1)

∆Civil liberties index

    

−4.201

0.000

 

gLaborquality

−4.4825

0.0000

257.3322

−13.0218

−17.8189

28.1665

0.0000

0.0000

0.0000

0.0000

−3.849

0.000

I(0)/I(0)/I(0)

Oil rents (% of GDP)

−0.4961

0.3099

50.2274

−0.5593

−0.4584

−0.3630

0.6207

0.2880

0.3237

0.6417

−0.410

0.341

I(1)/I(1)/I(1)

∆Oil rents (% of GDP)

−24.4396

0.0000

763.7187

−24.8631

−40.6641

68.2927

0.0000

0.0000

0.0000

0.0000

−4.381

0.0000

 

Official exchange rate (LCU per US$)

6.8524

1.0000

56.8494

−0.0041

−0.3924

0.2742

0.3694

0.4984

0.3477

0.3920

4.264

1.000

I(1)/I(1)/I(1)

∆Official exchange rate (LCU per US$)

−17.2496

0.0000

279.7176

−13.0412

−15.1460

22.3295

0.0000

0.0000

0.0000

0.0000

−3.030

0.001

 

Interaction PR

−4.3499

0.0000

192.3063

−9.5888

−10.2565

13.7582

0.0000

0.0000

0.0000

0.0000

−0.969

0.166

I(0)/I(0)/I(1)

∆InteractionPR

    

−4.382

0.0000

 

InteractionCL

−4.4834

0.0000

198.5403

−9.6032

−10.3289

13.9084

0.0000

0.0000

0.0000

0.0000

−0.997

0.159

I(0)/I(0)/I(1)

∆InteractionCL

    

−4.147

0.000

 

Total resource revenue (as % of GDP)

0.0098

0.5039

50.0442

−0.0797

−0.0060

0.0044

0.4716

0.4682

0.4976

0.4982

  

–/I(1)/I(1)

∆Total resource revenue (as % of GDP)

Insufficient to compute W-t-bar

Insufficient to compute W-t-bar

243.5393

−10.7078

−14.0106

19.3539

0.0000

0.0000

0.0000

0.0000

−3.721

0.000

 

Contribution of labor quality growth to GDP growth

−16.4384

0.0003

459.9353

−17.7686

−27.1345

44.3389

0.0000

0.0000

0.0000

0.0000

t-bar-2.240

Z[t-bar] − 2.343

0.010

I(0)/I(0)/I(1)

Growth of total factor productivity

−11.578

0.0000

1066.3014

−23.8252

−32.2078

49.8213

0.0000

0.0000

0.0000

0.0000

−11.578

0.000

I(0)/I(0)/I(0)

A.2: System-Dynamic Panel GMM, 1990–2016

Dependent variable: growth of the TFP

(1)

(2)

(3)

(4)

(5)

(6)

gTFP

gTFP

gTFP

gTFP

gTFP

gTFP

L.gTFP

0.101

0.0441

0.0399

0.0218

−0.00420

−0.00532

(0.124)

(0.154)

(0.155)

(0.162)

(0.182)

(0.181)

L2.gTFP

0.0554*

0.0178

0.0173

0.00376

0.00188

0.00134

(0.0305)

(0.0429)

(0.0437)

(0.0482)

(0.0564)

(0.0559)

L3.gTFP

0.0223

0.00420

0.00282

−0.0100

−0.0116

−0.0118

(0.0290)

(0.0427)

(0.0432)

(0.0467)

(0.0511)

(0.0510)

L4.gTFP

−0.0431*

−0.0618*

−0.0633*

−0.0595*

−0.0654

−0.0648

(0.0231)

(0.0353)

(0.0351)

(0.0336)

(0.0399)

(0.0398)

L5.gTFP

−0.0665**

−0.103**

−0.108***

−0.0974**

−0.0999*

−0.0995*

(0.0301)

(0.0403)

(0.0413)

(0.0384)

(0.0574)

(0.0572)

L6.gTFP

0.0405

0.0330

0.0274

0.0366

0.0216

0.0219

(0.0287)

(0.0320)

(0.0328)

(0.0333)

(0.0291)

(0.0291)

L7.gTFP

−0.0617**

−0.0721***

−0.0724***

−0.0642**

−0.0659**

−0.0656**

(0.0263)

(0.0278)

(0.0276)

(0.0293)

(0.0322)

(0.0319)

Oil rents (% of GDP)

0.108**

0.143**

0.236***

0.230***

0.235***

0.246**

(0.0545)

(0.0657)

(0.0626)

(0.0603)

(0.0879)

(0.106)

PoliticalRightsFreedomHouse

 

−0.0736

0.140

0.159

0.623

0.617

 

(0.463)

(0.499)

(0.488)

(0.457)

(0.450)

Interaction oil rents and political rights

  

−1.12 × 10−11***

−1.01 × 10−11***

−7.10 × 10−12

−1.01 × 10−11

  

(0)

(0)

(0)

(0)

Time dummy

   

0.151**

0.234*

0.235*

   

(0.0684)

(0.131)

(0.130)

Postsocialist dummy

    

−21.03

−20.90

    

(16.78)

(16.85)

Oil × postsocialist

     

−0.0444

     

(0.147)

Constant

−0.251

−0.0471

−0.681

−2.315

0.720

0.695

(0.417)

(2.045)

(2.185)

(1.939)

(4.457)

(4.491)

Observations

1355

1148

1135

1135

1135

1135

No. of countries

82

81

80

80

80

80

No. of instruments

275

205

206

207

207

208

Arellano–Bond testa

0.7797

0.3270

0.2431

0.2646

0.2936

0.2919

  1. Robust standard errors in parentheses
  2. ***p < 0.01, **p < 0.05, *p < 0.1
  3. aArellano–Bond test that second-order autocorrelation in residuals is 0; first-order autocorrelation is always present (not reported)

A.3: System-Dynamic Panel GMM, 1990–2001

Variable

(1)

(2)

(3)

(4)

(5)

(6)

gTFP

gTFP

gTFP

gTFP

gTFP

gTFP

L.gTFP

0.0174

0.0247

0.0276

0.00790

−0.0305

−0.0422

(0.143)

(0.141)

(0.147)

(0.151)

(0.131)

(0.130)

L2.gTFP

−0.154*

−0.154*

−0.151

−0.150

−0.146

−0.149

(0.0892)

(0.0898)

(0.0963)

(0.0968)

(0.0945)

(0.0950)

L3.gTFP

0.271***

0.277***

0.282***

0.285***

0.277***

0.268***

(0.103)

(0.100)

(0.103)

(0.104)

(0.0963)

(0.0964)

L4.gTFP

−0.142*

−0.143*

−0.154**

−0.165**

−0.170**

−0.168**

(0.0821)

(0.0807)

(0.0780)

(0.0807)

(0.0799)

(0.0819)

L5.gTFP

0.0788

0.0754

0.0744

0.0608

0.0586

0.0491

(0.0776)

(0.0768)

(0.0758)

(0.0753)

(0.0763)

(0.0759)

L6.gTFP

−0.0550

−0.0512

−0.0481

−0.0578

−0.0609

−0.0685

(0.0731)

(0.0737)

(0.0756)

(0.0783)

(0.0783)

(0.0777)

L7.gTFP

−0.0229

−0.0185

−0.0183

−0.0289

−0.0343

−0.0260

(0.0466)

(0.0473)

(0.0497)

(0.0513)

(0.0518)

(0.0532)

L8.gTFP

−0.0327

−0.0316

−0.0282

−0.0337

−0.0342

−0.0307

(0.0377)

(0.0373)

(0.0366)

(0.0388)

(0.0388)

(0.0379)

Oil rents of GDPNYGDPPET

0.0366

0.0314

−0.0415

−0.0519

−0.0552

0.00952

(0.0583)

(0.0579)

(0.0690)

(0.0718)

(0.0731)

(0.0556)

Political rights freedom house

 

−0.301

−0.490

−0.424

−0.315

−0.320

 

(0.494)

(0.495)

(0.503)

(0.495)

(0.490)

InteractionPR

  

8.34 × 10-12 **

7.63 × 10-12 **

7.09 × 10-12 *

7.41 × 10-12*

  

(0)

(0)

(0)

(0)

Time dummy

   

−0.197

−0.210

−0.199

   

(0.214)

(0.214)

(0.213)

Postsocialist dummy

    

−4.251

−4.071

    

(7.057)

(7.393)

OilSOC

     

−0.216

     

(0.236)

Constant

−0.238

1.057

1.921

4.713

5.794

5.561

(0.539)

(2.101)

(2.074)

(3.647)

(3.955)

(3.984)

Observations

215

212

208

208

208

208

No. of countries

74

73

72

72

72

72

No. of instruments

24

25

26

27

27

27

Arellano–Bond test

0.4703

0.3651

0.2942

0.3050

0.3074

0.3258

  1. Robust standard errors in parentheses
  2. ***p < 0.01, **p < 0.05, *p < 0.1

A.4: System-Dynamic Panel GMM, 2002–2006

Variable

(1)

(2)

(3)

(4)

(5)

(6)

gTFP

gTFP

gTFP

gTFP

gTFP

gTFP

L.gTFP

−0.517**

−0.933***

−0.932***

−0.932***

−1.044***

−1.059***

(0.204)

(0.184)

(0.185)

(0.185)

(0.268)

(0.240)

L2.gTFP

−0.325*

−0.851***

−0.840***

−0.840***

−1.009***

−1.021***

(0.179)

(0.226)

(0.236)

(0.236)

(0.341)

(0.325)

L3.gTFP

−0.132

−0.723***

−0.728***

−0.728***

−0.844***

−0.857***

(0.0887)

(0.218)

(0.217)

(0.217)

(0.266)

(0.267)

L4.gTFP

−0.0120

−0.169

−0.181

−0.181

−0.380*

−0.366*

(0.0894)

(0.212)

(0.217)

(0.217)

(0.216)

(0.194)

L5.gTFP

−0.147***

−0.190

−0.197

−0.197

−0.283

−0.268*

(0.0460)

(0.142)

(0.148)

(0.148)

(0.201)

(0.160)

L6.gTFP

−0.00860

−0.0121

−0.00976

−0.00976

−0.101

−0.108

(0.0864)

(0.159)

(0.156)

(0.156)

(0.100)

(0.0879)

L7.gTFP

−0.112

−0.282**

−0.279**

−0.279**

−0.288**

−0.293**

(0.0979)

(0.127)

(0.128)

(0.128)

(0.141)

(0.148)

L8.gTFP

0.160

0.0914

0.0894

0.0894

0.0394

0.0340

(0.102)

(0.120)

(0.118)

(0.118)

(0.1000)

(0.0961)

Oil rents of GDPNYGDPPET

0.250

0.339

0.421

0.421

0.417

0.500

(0.203)

(0.246)

(0.288)

(0.288)

(0.438)

(0.632)

Political rights freedom house

 

−2.210

−2.081

−2.081

0.843

0.747

 

(3.889)

(4.041)

(4.041)

(2.234)

(1.978)

Interaction oil rents and political rights

  

−0

−0

−0

−0

  

(0)

(0)

(0)

(0)

Time dummy

    

−0.863

−0.861

    

(0.539)

(0.544)

Postsocialist dummy

    

−47.74

−46.71

    

(71.03)

(71.80)

Oil × postsocialist dummy

     

−0.267

     

(0.853)

Constant

0.758

11.18

10.80

10.80

22.42

22.32

(2.196)

(17.88)

(18.31)

(18.31)

(26.93)

(27.30)

No. of instruments

72

72

49

50

51

52

Observations

386

307

303

303

303

303

No. of countries

79

78

77

77

77

77

Arellano–Bond test

0.2165

0.3078

0.3840

0.4428

0.6322

0.6647

  1. Robust standard errors in parentheses
  2. ***p < 0.01, **p < 0.05, *p < 0.1

A.5: System-Dynamic Panel GMM, 2007–2016

Variable

(1)

(2)

(3)

(4)

(5)

gTFP

gTFP

gTFP

gTFP

gTFP

L.gTFP

0.262***

0.277***

0.271***

0.273***

0.382***

(0.0671)

(0.0833)

(0.0854)

(0.0869)

(0.0865)

L2.gTFP

−0.00457

−0.00461

−0.0121

−0.0165

−0.0116

(0.0322)

(0.0382)

(0.0408)

(0.0426)

(0.0719)

L3.gTFP

−0.0764*

−0.0767

−0.0877

−0.0900

−0.0505

(0.0408)

(0.0592)

(0.0621)

(0.0633)

(0.0816)

L4.gTFP

0.00922

0.0248

0.0128

0.0130

−0.0147

(0.0373)

(0.0701)

(0.0730)

(0.0719)

(0.0766)

L5.gTFP

−0.0616

−0.0747

−0.0850

−0.0835

0.0205

(0.0583)

(0.0899)

(0.0959)

(0.0939)

(0.185)

L6.gTFP

−0.0266

−0.0282

−0.0409

−0.0394

−0.110*

(0.0281)

(0.0401)

(0.0447)

(0.0441)

(0.0656)

L7.gTFP

−0.00706

0.0100

−0.00514

−0.00347

0.0102

(0.0588)

(0.0641)

(0.0607)

(0.0614)

(0.145)

L8.gTFP

−0.0799

−0.0522

−0.0602

−0.0601

−0.0995

(0.0504)

(0.0580)

(0.0583)

(0.0596)

(0.0694)

Oil rents of GDPNYGDPPET

0.0577

0.100

0.237***

0.241***

0.160

(0.0738)

(0.0943)

(0.0904)

(0.0914)

(0.127)

Political rights freedom house

 

−0.432

0.0699

0.0190

−1.587

 

(0.495)

(0.492)

(0.483)

(1.042)

InteractionPR

  

−0***

−0***

−0

  

(0)

(0)

(0)

Postsocialist dummy

   

3.035

−4.339

   

(9.894)

(9.968)

SSA × postsocialist dummy

    

−0.0817

    

(0.257)

Constant

−0.309

1.054

−0.604

−1.204

7.397

(0.591)

(2.061)

(1.952)

(3.078)

(5.241)

No. of instruments

166

120

121

121

122

Observations

598

476

475

475

255

No. of Panel_ID

82

81

80

80

43

Arellano–Bond test

0.0061

0.1126

0.089

0.099

0.2006

  1. Robust standard errors in parentheses
  2. ***p < 0.01, **p < 0.05, *p < 0.1

A.6: List of 27 Oil-Exporting Countries

Algeria, Angola, Azerbaijan, Cameroon, Chad, Colombia, Democratic Republic of the Congo, Ecuador, Egypt, Equatorial Guinea, Gabon, Ghana, Indonesia, Iran, Iraq, Kazakhstan, Malaysia, Mexico, Nigeria, Pakistan, Russian Federation, Sudan, Thailand, Trinidad & Tobago, Turkmenistan, Ukraine, Venezuela.

A.7: List of Countries Used in the Estimations with gTFP as Dependent Variable

Albania, Algeria, Angola, Argentina, Armenia, Azerbaijan, Bahrain, Bangladesh, Barbados, Belarus, Bolivia, Brazil, Bulgaria, Burkina Faso, Cambodia, Cameroon, Chile, China, Colombia, Costa Rica, Côte d’Ivoire, Croatia, Dominican Republic, DRC, Ecuador, Egypt, Estonia, Ethiopia, Georgia, Ghana, Guatemala, India, Indonesia, Iran, Iraq, Jamaica, Jordan, Kazakhstan, Kenya, Kuwait, Kyrgyz Republic, Macedonia, Madagascar, Malawi, Malaysia, Mali, Mexico, Moldova, Morocco, Mozambique, Myanmar, Niger, Nigeria, Oman, Pakistan, Peru, Philippines, Poland, Qatar, Romania, Russian Federation, Saudi Arabia, Senegal, Serbia and Montenegro, South Africa, Sri Lanka, Sudan, Syria, Tajikistan, Tanzania, Thailand, Trinidad & Tobago, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Venezuela, Vietnam, Yemen, Zambia, Zimbabwe.

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Sadik-Zada, E.R. Distributional Bargaining and the Speed of Structural Change in the Petroleum Exporting Labor Surplus Economies. Eur J Dev Res 32, 51–98 (2020). https://doi.org/10.1057/s41287-019-00221-7

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  • DOI: https://doi.org/10.1057/s41287-019-00221-7

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