Resource curse
The resource curse is the economic notion that, counterintuitively, an abundance of easily obtainable natural resources may encourage internal political corruption, underinvestment in domestic human capital, and a decline in the competitiveness of other economic sectors, thereby actually hurting the growth prospects of the supposedly beneficiary nation. The concept is usually applied to natural-resource rich countries in Africa, Latin America and the Middle East which have failed to realize their apparent economic potential.
Revenues from state-owned natural resouces may free the state from the necessity of significant taxation, thus reducing accountability to citizens. Economic diversification may be neglected or delayed in the light of the temporary high profitability of the limited natural resources. The attempts at diversification that are financed are often grand public works projects which may be misguided or mismanaged. Some have suggested that a more effective mechanism would be to simply distribute revenues from state-controlled natural resources evenly among the population, as is done in the oil-rich U.S. state of Alaska.
Explanations for the curse
Economists have come up with several possible explanations for the curse. First of all, the revenues from natural resource exports may have adverse effects on the economy because they lead to an appreciation of the domestic currency. This hurts other (non-resource) industries because their products become more expensive on the world market, and exports generally fall. It may also lead to exchange rate volatility because the exchange rate fluctuates whenever global demand for the natural resource being exported changed. This phenomenon is also known as the Dutch disease.
Another possible explanation is the crowding out of human capital. Countries that rely on natural resource exports tend to neglect education because they see no immediate need for it. Resource-poor economies like Taiwan or South Korea, by contrast, spent enormous efforts on education, and this contributed in part to their economic success (see East Asian Tigers). Other researchers, however, dispute this conclusion. They argue that natural resources generate easily taxable rents that more often than not result in increased spending on education.
See also
External links
- Summary of research project on 'Resource Curse'
- Doctoral Course at Department of Economics: The Resource Curse
- Natural Resource Abundance and Human Capital Accumulation