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The Resource Curse

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Natural resources are often perceived as a driving force for a country’s development. However, empirical studies tend to show the contrary, that countries rich in natural resources demonstrate delayed development in comparison to those less well endowed. This paradox of abundance can be explained by both economic and political reasons.

The “Dutch disease,” identified in the Netherlands after the discovery of natural gas deposits during the 1970s, describes an economic mechanism that is now well understood: when a country exports its mining resources (usually in exchange for dollars), the actual exchange rate of the local currency appreciates, making industrial and agricultural production uncompetitive. If nothing is done to remedy this, these sectors tend to disappear and the country comes to depend completely on the export of raw materials, even though the mining sector is an economic enclave demanding major investment but providing few jobs. Certainly, states with small populations, such as Qatar and Kuwait, have shown their ability to develop thanks to the oil rent. But the reverse situation can occur in more populous countries like Nigeria and Venezuela, where such revenues only benefit the ruling oligarchy; the general population suffers from a high level of unemployment following the disappearance of industrial and farming activity, because none of the profits gained from mining are redistributed to them.

Another consequence, this time political, is that, owing to oil revenues, a government can finance itself without having to tax the country’s economic activities. This spares it the need to ensure its legitimacy among the population and enables it to survive even if the national economy has collapsed.

However, such an outcome is in no way inevitable, and many countries (Norway, Botswana, etc.) have shown that mining resources can serve economic development. The problem is not resource abundance in itself, but the way in which it is managed. What is crucial is the existence of a functional state, with institutions able to define and implement policies capable of neutralizing the tendency to disorganize the economy and political system of the producing country and devise a means of redistributing revenue which benefits as many people as possible.

To quote this article

" The Resource Curse " World Atlas of Global Issues, 2018, [online], accessed on Mar 15 2021, URL:
https://espace-mondial-atlas.sciencespo.fr/en/topic-contrasts-and-inequalities/focus-1F02-EN-the-resource-curse.html

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