Resource Rents, Public Investment and Economic Development: The Case of Bolivia

This dissertation studies the relationship between natural resource rents, public investment and economic development via the Bolivia case. Public investment in infrastructure, and human development expenditures can be a crucial driver of rapid economic growth and poverty reduction, especially in countries with an infrastructure constraint and high poverty levels. The implementation of this type of development strategy depends on the nature of the state and the political limits outside of it. The first chapter of the dissertation presents a structuralist economic model of growth and distribution in an open, three sector economy with an agricultural infrastructure constraint and deficient aggregate demand where the government sector captures the rents originated in an enclave sector such as an oil/gas or mineral sector. The model shows that once the fiscal constraint is overcome - which translates itself into an increase in public investment - and the sectoral supply bottlenecks gradually eased, simultaneous increases in employment, real wages and growth become attainable. The second chapter investigates empirically the relationship between public investment, private investment and economic growth. We use time series analysis to analyze the effects of public investment on private capital formation and GDP growth in Bolivia for the time period 1960-2016 by employing a likelihood cointegration analysis with structural breaks at known points in time. The results obtained offer empirical evidence that supports the hypothesis of crowding-in of public investment on private capital formation, and a positive effect of public investment on gross domestic product. The overarching theme of the third chapter of the dissertation is the political economy of development in Latin America with an emphasis in Bolivia. Specifically, we investigate the political economy of property and control of natural resources and the differences across countries in the region and address different issues in relation to the implications of the private-transnational or domestic-state control of a natural-resource sector that tends to generate significant rents. The assumption that privatization was going to solve agency problems, including corruption and efficiency issues that would be translated into higher revenues for the state, failed in the hydrocarbon sector in Bolivia during neoliberalism