"One thing leads to anothercommodities" - linkages and industrial development: a conceptual overview

Sub-Sahara African commodity exporting economies have benefitted greatly from the commodities boom of the past decade. The conventional wisdom argues that resource extraction is corrosive of industrial development. This is due to a combination of the macroeconomic consequences of resource exploitation and the assumed enclave nature of capital- and technology-intensive mineral and energy extraction. The paper challenges this pessimistic i?½resource cursei?½ argument and argues that there are unexploited opportunities for promoting industrial development through the development of linkages from the commodities sector. In particular, these opportunities may be greater for backward than for forward linkages, particularly in the minerals and energy sectors. In making this case, this Discussion Paper draws on the experience of high-income countries which have resource-intensive economic structures, the geographical specificity of many resources and the growing interest of large resource-extracting firms in outsourcing the production of inputs which are outside of their core competences, It sets out a general model of linkages between industry and services and the commodities sector which distinguishes between win-win and win-lose outcomes. The paper concludes with a brief review of the reasons why Governments might wish to intervene to support linkages between the commodities and the industrial and service sectors. Companion Discussion Papers 13 and 14 report the results of a detailed empirical research focus on the extent and determination of linkages in nine African economies, and on policies which may promote the broadening and deepening of linkages from the commodities to the industrial sector in Sub-Sahara Africa and other low income regions of the world.