The Curse of Natural Resources
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Authors
Brinkman, Bradley M.
Issue Date
2007
Type
Thesis
Language
en_US
Keywords
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Abstract
This Senior Individualized Project is essentially an exploration into the
observation that many countries around the world today which possess a wealth of
natural resource are plagued by severe economic and social development problems.
From the oil abundant Middle East to mineral rich sub-Saharan Africa, many countries
and regions seem to be poor and ridden with war and violence despite the enormous
natural wealth in which they possess. However, a growing field of thought in economic
and development literature proposes that many of these resource-dependent countries are
poor not in spite of their resource wealth, but rather because of it. Natural resources are
no longer thought of as an easy path to rapid development, but rather as a potential curse
and an impediment to a developing nation's quest to obtain a higher level of economic
prosperity and social well-being.
Proponents of this resource curse theory offer both economic and political
explanations for why resource wealth can retard developmental progress. Resource
wealth or a boom in the world price of a country's leading resource export can distort
economic incentives within the nation's economy. A resource abundant country will tend
to specialize in the extraction and exportation of a booming resource at the expense of
other more sustainable economic industries. This leads to a less diversified economy
whose fate will rise and fall at the mercy of world commodity prices which lie beyond the
realm of their power. Furthermore, nations experiencing a resource boom can be led to
ruins by virtue of the inordinate amount of wealth they obtain in a short amount of time.
An in-depth case analysis is provided of the spending bonanza which occurred in
Venezuela following the oil booms of the 1970s and how a lack of fiscally responsible
policies led to a disastrous debt crisis.
From a political angle, an analysis of literature will reveal that resource wealth
can lead to a higher probability of corruption in public institutions, as government
officials are often tempted to dip into resource rents for private gain rather than the public
interest. Even more devastating for the development of many nations, natural resources
can prolong and intensify war and violence by funding rebel guerilla movements and
securing the power of tyrannical autocrats. However, not all development experts
support the claim that resource wealth is a cause of governmental failure. Other literature
proposes that the quality of pre-existing institutions will determine how a country
manages its resource wealth. Citing prominent counterexamples of highly developed
nations which were once highly dependent on natural resources, such as the United States
and Canada, many theorize that it is the quality of institutions which impact resource
wealth rather than the other way around.
To test these theories with real world data, a statistical analysis was performed to
explore the relationship between natural resources and different measures of economic
and social development. In the course of this project a small, yet statistically significant,
negative correlation was found to exist between a nation's level of resource intensity and
three different development indices: GDP per capita, the UN's Human Development
Index, and the Corruption Perception Index tabulated by Transparency International. A
fourth, the average annual growth rate of GDP from 1970 to 2003, was found to not have
a statistically significant relationship. To use these findings and the economic theory
behind them to definitively claim that natural resources are a universal curse to nations
seeking a path towards development would, in my opinion, be a jump to a shaky
conclusion. Natural resources can be used to promote economic growth, yet they must be
managed in an efficient way to ensure that rents are reinvested to promote sustainable
future development. Unfortunately, the resource curse seems to be such a prevalent
phenomenon because many resource abundant countries have been plagued with poor
political leadership and economic mismanagement. Therefore, while it would not be
proper to definitively say that natural resources are undoubtedly a curse, I am confident
to conclude in this SIP that resource wealth has undoubtedly not been the blessing that
many in the developing world had previously hoped for.
Description
95 p.
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