History clearly shows that natural resource wealth may harm economic performance and make citizens worse off. There has been increasing interest in the socalled resource curse, i. In recent years a number of african economies have seen an accelerated gdp growth rate. Ent seeking and the r curse ucsb department of economics.
The natural resource curse harvards dash harvard university. Natural resource revenues have also been linked to slow economic growth rates, inequality, and poverty. The findings are in alignment with the view that there is no clear deterministic evidence of natural resource abundance as a curse or a blessing. Although most studies report evidence of some type of resource curse, a signi. Explanations of the tendency for natural resource abundance to immiserise. If indeed natural resource wealth leads to poorquality institutions in the first place there is of course little chance for positive institutional change ever to occur. The problem of volatility is the second major explanation for the resource curse. Meanwhile, south sudan represents an african country with weak institutions in natural.
In this paper we show that economies with a high ratio of natural resource exports to gdp in 1971 the base year tended to have low growth rates during the. For the first period, their results validate the natural resource curse hypothesis 33, while the results are reversed for the second period, due to a better institutional environment in the sample countries. Rebel and separatist groups fighting to control a certain resource or resource rich area. How to combat the resource curse why nations fail why. They found that dependence on natural resources was connected to low levels of economic growth. In many countries, natural resources have been detrimental to the economic development. Table1 regressionofeconomicgrowthonnaturalresourceabundance,19701990,controllingforgrowth inthe1960s loggdp1970. Identifying the mechanism allows a better stab to be made at prescription. Two years later, the economists jeffrey sachs and andrew warner initiated the big statistical literature on the subject. Almost without exception, the resourceabundant countries have stagnated in economic growth since the early 1970s, inspiring the term, curse of natural resources. Empirical studies have shown that this curse is a reasonably solid fact. In terms of intellectual history, this negative view. Its time for africas leaders to address the problems that hinder the development of the continents natural resources.
Why are natural resources a curse in africa, but not. Why natural resources are a curse on developing countries and. Natural resources are one of the four factors of economic growth. Sachs and warner, 1995, and mehlum, moene and torvik, 2006. Aug 01, 2017 instead of benefiting and prospering the country and its citizen, the extraction of the natural resource causes significant and serious problems.
A large literature has developed that documents a negative association between the presence of natural resources and economic development. Environment and energy program, international finance and macroeconomics program it is striking how often countries with oil or other natural resource wealth have failed to grow more rapidly than those without. One of the surprising features of modern economic growth is that economies with abundant natural resources have tended to grow less rapidly than natural resource scarce economies. Daniel lederman and william maloney, for instance, have suggested that natural resources are neither curse nor destiny, asserting instead that its a. Resource curse, economic growth, inequality, institutions, real exchange rate, budget.
Many oil, gas and mineralrich countries have failed to reach their full potential as a result of their natural resource wealth. Naturalresourcesandeconomicdevelopment thecurseofnaturalresources. Growth studies show, counter to intuition, that the discovery of a natural resource may be a curse rather than a blessing since resourcerich countries grow slower than others. Oct 25, 2012 daniel lederman and william maloney, for instance, have suggested that natural resources are neither curse nor destiny, asserting instead that its a mixed bag. The natural resource curse also known as the paradox of plenty refers to the paradox that countries and regions with an abundance of natural resources, specifically p ointsource nonrenewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. Institutions and the resource curse mehlum 2006 the. The paper concludes with a consideration of institutions and policies that some commodityproducers have tried, in efforts to overcome the pitfalls of the curse. The term resource curse encompasses the significant social, economic and political. Due to this time series property our proxy for institutional quality is the degree of democracy.
Proponents of the resource curse have paid less attention to the conditions that bring about or hinder positive institutional change in countries outside the oecd. Natural resources, for most poor countries, are deemed to be more of a curse than a blessing. Many analysts suggested a historically positive association of natural resource abundance and. In this paper we explore the empirics and theories of the socalled resource curse and try to assess its robustness. The basic idea is best demonstrated through the case of a. In many cases the petroleum industry has played a pivotal role in this growth. This is often, and most obviously manifested in, the form of civil wars. Are natural resources a blessing or a curse for developing. The resource curse, also known as the paradox of plenty, refers to the paradox that countries with an abundance of natural resources such as fossil fuels and certain minerals, tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources. Escaping the natural resource curse and the dutch disease. Is oil in nigeria a growth cure or a resource curse.
Volatility refers to the ups and downs of the price of a natural resource. The myth of the resource curse challengemarchapril 2004 7 sented evidence of an inverse statistical relationship between naturalresourcebased exports agriculture, minerals, and fuels and growth rates during the period 197090. In this thesis, botswana represents an african country with good institutions in the management of natural resource for state building, hence a blessing. Hks faculty research working paper series, rwp5, john f. Natural resource wealth, particularly oil wealth, has made it more likely for governments to become or remain authoritarian over the past 30 years.
Published in volume 49, issue 2, pages 366420 of journal of economic literature, june 2011, abstract. Countries with oil, mineral or other natural resource wealth, on average, have failed to. Moreover, resource abundance may involve a displacement of a growthessential manufacturing sector, leading to dutch disease. The natural resource curse is a phenomenon where natural resource endowed countries experience worse economic and political outcomes than countries with no natural resource endowment siegle 2008. Pdf on apr 1, 2016, ramez badeeb and others published the evolution of the natural resource curse thesis. Harpel professor of capital formation and growth, harvard university. A critical literature survey find, read and cite all the research you need on researchgate. The term resource curse encompasses the significant social, economic and political challenges that are unique to countries rich in oil, gas and minerals. One culprit may be the socalled dutch disease, whereby resource revenues raise a country. The result was stronger dutch currency, poor performance of other sectors and industries, and. We conclude that there are many open questions and that the case of the curse needs revision and nuance.
The resource curse or excess availability of natural resources presents a particularly interesting analysis when it comes to economics and often underpins many of the policies and theories which can be looked at in relation to how the government can organise its own economic behaviour, so as to achieve longterm economic growth acemoglu, 1996. Now the indication of a resource curse only appears for countries with inferior institutions panel b. Oil, corruption and the resource curse harvard university. An overview of rentseeking and its connection to the resource curse ii. Our findings suggest that a pointsource type natural resource endowment does retard democratic and. Global history is full of illustrations of countries like sudan, nigeria, angola and netherlands whose natural resource wealth resource curse in form of conflict, corruption, and poverty. The first critical task for economists is to see whether these casual observations can be elevated to empirical regularities. In general, political scientists find that governments are more responsive to their citizens and are more likely to.
The study of the resource curse, and of governance and corruption more gener ally, began properly gaining traction as a. Africa is a region abundant in natural resources and rich in vast oil reserves. The literature on the resource curse shows a bleak relationship. Why natural resources are a curse on developing countries. The empirical evidence suggests that either outcome is possible. A while ago we discussed the economic and political dimensions of the resource curse see here, here, here, here and here. Apr 30, 2012 natural resource revenues have also been linked to slow economic growth rates, inequality, and poverty. When does natural resource abundance lead to a resource. In terms of intellectual history, this negative view of mineral and fuel abundance goes against much of the earlier thinking on the subject. Although some resource rich countries benefit from their natural wealth, others are in a terrible state. This study only addresses hydrocarbons, metals, minerals, and oil.
Crosscountry evidence of the natural resource curse there are, indeed, resourcerich countries that bene. Summarizing and extending this research to 1989 several years later, jeffrey sachs and andrew warner. Introduction the term resource curse describes the notion that resourcerich areas tend to be poor and often politically oppressed. The price of natural resources is, for the most part, set by world markets. In this paper we show that economies with a high ratio of natural resource exports to gdp in 1971 the base year tended to have low growth rates during the subsequent period.
The third debate is over whether the resource curse is real or illusory. One of the surprising features of modern economic growth is that economies with abundant natural resources have tended to grow less rapidly than naturalresourcescarce economies. This paper is a revised version of nber working paper no. Sachs and warner 1995 and 2001 empirically show that a higher dependence on natural resources reduces subsequent economic growth in a large cross section of countries. It consists in documenting that resource windfalls possibly under certain circumstances, to be established lower living standards. Yet countries that are abundantly endowed with such natural resources often encounter pitfalls that interfere with the expected superior economic performance. This is a phrase used to refer to the challenges and adversities that netherlands went through when it discovered north sea gas.
Explanations of the tendency for natural resource abundance to immiserise growth and development the resource curse have traditionally followed four approaches. From a policy perspective, while it is important to know if a curse exists, it is perhaps more important to know the mechanism by which it casts its spell. A paradoxical situation in which countries with an abundance of nonrenewable resources experience stagnant growth or even economic contraction. The final political aspect of the natural resource curse is the ability of such resources to create and perpetuate conflicts within developing nations. Resource rents, government institutions, rentseeking jel categories. The term resource curse was first deployed in the formal economics literature in. In other words, resource rich countries are pricetakers not pricesetters.