Resource curse

published 14 January 2021

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.

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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.