Local resource-based growth, inequality, and state capacity

Recently, Andean countries, including Bolivia, Colombia, Ecuador, and Peru, have experienced sustained growth, with average annual rates of 4.9% in the period 2011-2014. Peru averaged an annual rate of 6%, higher than the approximately 4.5% rates experienced by the other countries. Growth was led mainly by mining and hydrocarbons exports. Each sector's growth in these countries has depended on external (international prices) and internal (private investment incentives) conditions (Arellano-Yanguas 2011a). The most important commodities in each country were gas in Bolivia, coal and oil in Colombia, oil in Ecuador, and copper and gold in Peru, with 2003 clearly being the starting year for the price boom in the most important commodities. The extractive industries (referred to here as "extractives") have also been the main source of investments in the Andean region, resulting in income and tax revenues. Different rules make it difficult to compare estimates of fiscal collection from the extractive resources in each country; however, the Economic Commission for Latin America and the Caribbean (ECLAC) has estimated that between 2000 and 2012, tax revenues from the extractive sectors grew as a share of total collection in all countries under review (Figure 1). Another key aspect during this recent boom was the consolidation of the rules for fiscal transfers to sub-national governments of a portion of tax revenues from the extractive sectors in countries like Bolivia, Colombia, and Peru. These rules establish that revenues from extractive activities must be shared between central governments and producing local governments. As this essay later shows, rules for sub-national transfers are important to understand public investments, including rural investments, in extractive local territories...