Glossary

Resource curse

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than those with scarcer resources.

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than those with scarcer resources. The term was first used by UK economist Richard Auty in 1993, but the concept is hundreds of years old. 

There are several potential explanations. Some debate whether the idea of a “resource curse” is even valid, or whether it is more specific to individual countries and arises from a combination of problems rather than simply plentiful commodities. 

But it’s not hard to find examples. Many Gulf nations, Latin American states and African countries are overly reliant on oil or other valuable but volatile resources. The theory goes that if a country has plentiful supplies of a given commodity, then it will invest too much of its time and energy in developing industries around this resource. That makes the economy vulnerable to swings in commodity prices, which are highly cyclical. The boom-bust cycle that results holds back investment in other sectors and growth in general. 

And it’s not only emerging economies that struggle. The term “Dutch disease” was coined when the Netherlands discovered a huge natural gas field in 1959. Strong demand for the gas from other countries drove up the value of the Dutch currency (then the guilder), which in turn hit demand for its other exports, and helped to drive the economy into recession. This exchange-rate effect is one reason why exporting raw materials can make it harder to build “value-added” industries with high-skilled jobs such as manufacturing.

Recommended

Margin call
Glossary

Margin call

When an investor borrows to bet on markets, they put down a deposit known as “margin”.
2 Apr 2021
Balance of payments
Glossary

Balance of payments

The balance of payments refers to the accounts that sum up a country's financial position relative to other countries.
8 Jan 2021
Yield-curve control
Glossary

Yield-curve control

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to …
25 Dec 2020
Intangible assets
Glossary

Intangible assets

An intangible asset is anything that a company owns that isn’t physical.
25 Sep 2020

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021