Question

Question 2 – The State as a Regulator

1. The state interferes with the above extractive cycles. Do you agree or disagree qith this statement? Explain in detail.
2. Countries who take over the extractive industry in the long run fail. What does this mean? Explain in detail as to whether or not you agree with this statement.
3. Outside investment in the state’s natural resources means that the state will lose control of its resources. do you agree with this statement? Explain in detail.
4. Can the state be an extractive operator? Explain how the state might accomplish this goal.
5. Is the state more effective as an operator than a private company? Why or why not? Explain in detail.

Answer 1

Yes, I agree with this statement. owning oil resources also have many benefits but, the current state of developing countries is characterized  by poor regulation and implementation problems. Due to this economic failure takes place. This happens because in extractive industries, most of the resources are owned by government and it gives it MNC on contract or on lease. These resources are also crucial for countries economy and sustainability. Therefore from time to time government may interfere for various reasons such as for economic viability and ecological balance or for the population living in nearby vicinity.

Yes I agree with this statement as well. The countries which take over extractive  resources in the long run fail because economy becomes dependent upon one sector. This situation begets following consequences;

1-Sometimes the increase in exchange rate which takes place due to oil export, adversely impacts the productivity in non oil sector. This is known as "Dutch disease,"

2- Income accumulates in the hands of few people. This in turn adversely impact or not improve the living standard in general in the country .

3- Other than this, oil rich countries have higher risk related to civil war. It has been noticed that when when countries depend on the export of primary commodities.

I don't agree with this statement. However I do not deny that due to lack of planning, poor legal and administrative framework, the foreign investment in oil sector may bring more negative consequences than the positive ones.

Yes state may become operator but in that case competitiveness of oil sector will be compromised.

Yes state regulator can play better role in managing this industry as it has more power to formulate new regulation. It can coordinate with various stake holders. It can Internalize the environmental costs of natural resources extraction by imposing various taxes and duties. Sectoral operator has limitation of authority, jurisdictions. It can not formulate or implement or amend any rule or law.