Resource curse
The resource curse is a phenomenon where countries rich in natural resources, such as minerals and oil, often experience slower economic growth compared to those with fewer resources. This counterintuitive situation challenges the conventional belief that abundant resources should inherently promote economic development. The resource curse is particularly prevalent in nations with large, export-oriented resource industries, which can distort the economy by diverting labor and inflating domestic prices, a situation known as "Dutch disease."
Additionally, the management of resource wealth is critical; misallocation of profits through corruption or excessive current consumption can impede sustainable development and lead to civil unrest as various groups compete for wealth. While many countries struggle with these challenges, some, like Botswana, have successfully utilized their resource wealth for positive economic outcomes. The overarching issue revolves around how effectively a country can harness its resources for long-term growth, emphasizing the importance of governance, investment strategies, and economic diversification in overcoming potential pitfalls associated with resource wealth.
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Resource curse
The “resource curse” refers to an ongoing debate about the role a country’s endowment of resources, such as minerals and oil, plays in its rate of economic development. The possible existence of a resource curse and how it can be avoided are important issues in the development of resources globally.
Definition
The resource curse is the term used to describe the fact that countries with large endowments in resources have often tended to develop more slowly economically than countries with small endowments in resources. This behavior is the opposite of the expected, traditional view that abundant resources are an important aid in a country’s economic development.
Overview
That an abundance of resources is a major advantage for the economic development of a country has been widely believed. However, there is an opposing view based on the comparison of the rate of economic advancement for developing countries. The comparison shows that countries with large endowments of resources have tended to develop at slower economic rates than countries without such endowments in resources. This type of situation has become known as the “resource curse.” The resource curse is considered a particularly likely problem for a country that has a large endowment of a nonrenewable resource, such as minerals or oil, that leads to an export-oriented industry that is large relative to the country’s domestic economy.
Several arguments are made to explain why the resource curse might occur. In general, exporting natural resource products is less desirable than manufactured produing. Natural resources tend to have declining prices relative to manufactured goods over time, and natural resource markets are very volatile, with large swings in prices. A second argument is that the presence of a large, export-oriented resource industry, often operated by foreign companies, can severely damage a country’s economy by taking workers (higher wages) from crucial domestic sectors and raising domestic prices (inflation). This is referred to as the “Dutch disease” after the impact of a large natural gas find on the economy of the Netherlands in the 1960s. A third argument points out that the profit that does go to the country for its resource development is often wasted through corruption or current consumption and is not invested in the country to replace the value of the resources being used up. It can also lead to civil unrest as different groups in the country fight for a share of the wealth. The resource constraints of developing countries further contribute to these problems.
Ultimately, the debate is not about the value of resources in a country’s economic development but about how well a country uses the resource wealth it has been given. Countries with large resource wealth often are not able to use it wisely for economic development purposes and may misuse it to the point that overall economic development is hindered. It does not have to be that way, as shown by a case like Botswana, which has used its diamond industry as an important factor in its successful economic development, but past experience shows that care must be taken when a country is found to be endowed with a large resource, to avoid the potential problems that can lead to the resource curse.
Bibliography
Elbra, Ainsley. Governing African Gold Mining: Private Governance and the Resource Curse. Palgrave Macmillan, 2016.
Fernando, Jason. "Resource Curse: Overview and Examples." Investopedia, 29 Sept. 2022, www.investopedia.com/terms/r/resource-curse.asp. Accessed 6 Jan. 2025.
Lashitew, Addisu and Eric Werker. "Are Natural Resources a Curse, a Blessing, or a Double-Edged Sword?" Brookings, 16 July 2020, www.brookings.edu/articles/are-natural-resources-a-curse-a-blessing-or-a-double-edged-sword/. Accessed 6 Jan. 2024.
Menaldo, Victor. The Institutions Curse: Natural Resources, Politics, and Development. Cambridge UP, 2016.
Ross, Michael L. The Oil Curse: How Petroleum Wealth Shapes the Development of Nations. Princeton UP, 2013.
Patrick, Stuart M. "Why Natural Resources Are a Curse on Developing Countries and How to Fix It." The Atlantic, 30 Apr. 2012, www.theatlantic.com/international/archive/2012/04/why-natural-resources-are-a-curse-on-developing-countries-and-how-to-fix-it/256508. Accessed 1 Jan. 2025.
Shaffer, Brenda, and Taleh Ziyadov, editors. Beyond the Resource Curse. U of Pennsylvania P, 2012.