The 'Resource Curse' That Keeps Some Countries Poorer

The 'Resource Curse' That Keeps Some Countries Poorer

The resource curse plagues a variety of countries across the world. What is it, and how does it work?

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All nations strive to attain economic growth and success. Some achieve it, others don't. But in this conversation regarding the limitations of certain nations' growth, the resource curse becomes a considerable subject of conversation.

What is the resource curse? Well, let's set the scene.

It's 2019, and a (fictional) country known as Alysatian is poor, small, suffers from slow growth, doesn't have a single particularly large industry, and has a weak undemocratic government. Alysatian has just discovered a massive reserve of natural resources (NR) on their land. More specifically, gold. On the world stage, gold is extremely valuable. As a result of this discovery, a major gold resource giant, Barrick Gold, begins negotiations with the government to start extracting gold from the ground through mining and other means. Alysatian sees this opportunity as incredibly beneficial. These negotiations allow them to sell the resources from their land, employ the natives, and earn money. Ultimately, Alysatian strikes a deal with Barrick Gold, and the company moves into Alysatian to start building their mines.

Five years later, Barrick Gold is still stationed in the country extracting gold and making large sales. However, the country isn't seeing any more economic growth. Nothing has changed for the country as a whole. It is still economically minuscule, it is still weak, and the government is still poorly managed. What happened? How come finding gold and resources in Alysatian didn't propel it into a new age of development? Why didn't the money they get from this gold deal let them build and grow other industries?

Alysatian suffers from the resource curse.

The resource curse describes countries that are rich in natural resources but suffer from cripplingly low economic growth. It seems from the outside that the valuable natural resources within these countries don't contribute to their development as a nation. In fact, countries with high amounts of natural resources today show significantly less growth than resource-poor countries. There are studies that show a strong negative correlation between the amount of natural resources within a country and its growth — meaning that, statistically, countries with more resources tend to (very frequently) grow more slowly.

Alysatian the imaginary country is representative of real countries such as Papua New Guinea (PNG). PNG recently allowed Exxon Mobil to extract liquefied natural gas from its land. In fact, it is one of the largest natural gas extraction projects in the world, costing $19 billion. This has caused a variety of problems for PNG, including destabilizing the area. Natives feel as though this project has brought them no economic stability.

The question in economics, and in every discipline, is always, "Why?" There's actually a wealth of studies on the subject of the causes of this "curse." Most likely, the cause of the resource curse is a combination of the following:

1. Weak governments

It has been proven time and time again that weak governments in these small undeveloped countries can seriously perpetuate the resource curse. Not only are these governments ineffective in dealing with large corporations, but they fail to adequately serve the people. The money that is retained from the NR projects is used inefficiently or, even worse, not at all. Typically these weaker governments see high levels of corruption and lose a significant portion of the earnings made from the NR projects. For this reason, much of the money does not get reinvested into public projects or the economy. PNG is a primary example of this situation with at least $189 billion USD of earnings missing. This rent-seeking behavior by government officials is difficult to catch as a result of their weak infrastructure.

2. Dutch disease

Dutch disease is an economic phenomenon gaining its name from the Dutch economic crisis in the 1960s. Dutch disease can be described as a spike in currency appreciation as a result of the large growth in NR exports. The growth of these exports results in a large inflow of foreign currency, leading to an increased currency value of the exporting country. This does two things:

1) Makes other exported goods less competitive in the global market, and

2) increases the cost of non-tradeable inputs such as wages.

This hurts the profits in traded activity using those inputs, such as manufacturing.

3. Trade volatility

No doubt one of the most panic-inducing economic factors is uncertainty. When stock prices go up and down, households cut spending. When unemployment and job uncertainty rise, households cut spending. Time after time, it has been proven that uncertainty causes households to be more conservative with spending. Spikes in exports and imports lead to price uncertainty. This makes it more difficult for suppliers to reach a market clearing quantity ending with either a surplus or a shortage. This inefficiency causes more price fluctuations in an attempt to reach market-clearing prices.

No matter the cause of the resource curse, it is a very real problem that impacts many developing countries. There are policies and government behaviors that can help reduce the chances of a country suffering the resource curse. Norway is the best example of a country that managed striking oil well through transparency, effective government control, and reasonable spending. Other developing countries such as Papua New Guinea are not fortunate enough to have the same fate.

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6 Ways To Save Money As A Broke College Student

Money saving tips so you can afford adult life while also paying for an expensive tuition.

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It is difficult to work, attend college, and make all your payments on rent, tuition, and bills, (not to mention finding a little money to spare on yourself). These are six ways to save that have helped me in this money stressful time and that you should use too in order to reduce the expenses of adulting.

1. Saving money on rent.

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Apartments are cheaper than houses because most include some of the bills in the rent cost. Make sure to check what amenities apartments offer such as free wi-fi, trash removal, or water included. When choosing roommates the more the better for cost. You should get at least one roommate because it is difficult to afford even a studio apartment living on your own. If you want pets you should choose a place that doesn't have pet rent because even if you have a large non-refundable pet fee it is cheaper in the long run then paying twenty a month per animal.

2. Saving money on bills.

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If you choose to live in an apartment complex, having an apartment on a higher floor will make your electric bill cheaper in the winter because heat rises. Even though your electric bill will be higher in the summer you can afford to work more because classes won't be in session. When purchasing light bulbs get ones that are energy efficient and use lights with batteries to help save on the electric bill. Also make sure to turn off all lights when you aren't in the room. You can save water by not running the faucet when you brush your teeth. Anyway you can think to conserve water and energy use that to your advantage.

3. Saving money on food.

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Your best friend is buying in bulk when you go to get groceries. I personally buy ten pound ground beef logs, cut them up, and place them in the freezer to use later. Everything is cheaper when you buy in bulk and you save time grocery shopping. If you don't know how to cook now is the time to learn because frozen and fast food eats up your money. You should also go to your local food bank if you are really struggling because everyone has to eat. Don't be afraid to ask for help if you need it! Going without food to pay your rent is not something anyone should have to do.

4. Saving money on furniture.

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You should buy used if at all possible when finding furniture for your apartment or house. Living in a college town has its perks because people are constantly moving you can find great deals at garage sales or on craigslist. For instance I got my couch for free, I just had to move it out of a graduating students apartment. You can also check out thrift stores and consignment shops in your town.

5. Saving money on entertainment.

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There are a lot of deals and discounts for college students so take advantage of that for entertainment.. For example movie theaters usually offer a student discount and if you go to a matinee showing, tickets are even cheaper. Find out when your local bar's happy hour is and use it. Also see what meal deals are offered by restaurants around you, such as 3 items for 10 or specials on Thursday nights. You can also use apps to find coupons, my personal favorite being pocket points because it rewards you for studying.

6. Saving money and side hustles.

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Put back money during the summer in order to have a backup fund for when things get crazy busy during the school year. Scope out banks and find out what interests they offer on savings accounts in order to increase the amount of money you have saved over the years. If you need extra money you can get paid for donating plasma and you can sometimes find research studies that will offer participants cash for things as simple as just an opinion. There are also baby sitting and pet sitting apps you can download to get one time gigs if you are low on funds for the month.

These are all great tips that I have been taught or have learned living as a broke college student. It isn't easy living life in the adult world and pursuing a degree at the same time. I hope these tips will help you save money and keep you out of hard times.

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11 Financial Tips For College Grads Who Don't Know Where To Start

Most people learn how to navigate their finances as they go, at the cost of making several mistakes and starting good habits later than they should've. Don't be like most people!

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Adulting is hard, especially when it comes to money. If you're like me and you took a personal finance class in high school or college, you probably don't remember much because the information wasn't relevant to you at the time. Well, now you're almost done with college and you're ready to be welcomed into the real world as a freshly-minted adult. Suddenly you realize that class was probably one of the most important classes you ever could've taken.

Here are 11 tips to start making money moves today.

1. Start building your credit

It may not seem important now, but it's a good idea to start building your credit early. In three to five years or so, when you're ready to apply for a car or home loan, you're going to want to be approved to get the best interest rates, and that means having a credit score of at least 760. See tips two and three for more on how to increase your credit score.

2. Open a credit card if you don't have one already

One huge factor in your credit score is how long your oldest credit card account has been open, so you want to make sure to start early. A first card many people get is called a "secured" credit card, which basically acts like a debit card so the bank knows you won't go all "Shopaholic" and max it out. Make sure to pay every single one of your monthly payments on time and in full. No excuses, no exceptions.

3. Make all of your student loan payments on time and in full

JUST DO IT.

4. Embrace the concept of paying yourself first

Paying yourself first is a concept that many millionaires, even billionaires, swear by. Decide how much of your income you want to save. Then set up a portion of your paycheck to deposit directly into your savings before you can even think about it. The rest can go to your checking account for spending on bills, food, rent, and other expenses.

5. Build a three- to six-month emergency fund

Did you know that 33% of Americans would struggle to pay $1,000 in an emergency? This is a serious issue. You don't want to ever experience living "paycheck to paycheck," let alone have a minor crisis throw your life upside down. That's why you're going to build this emergency fund before you do anything else with your money. Think of this fund as something that you can't touch until you absolutely need it. If and when that time comes, you'll know, and you'll be so grateful that you were smart and were prepared.

6. Open a Roth IRA

There are so many things to be said about Roth IRAs and why you should get one as a new college graduate. In short, IRA stands for Individual Retirement Account. A Roth IRA is unique because any money you put into it is taxed now, so you won't have to pay taxes on it when you're retired and ready to use it. The main benefit: you also won't have to pay any taxes on the money you earn in the account. In addition, because you're young, you get to take advantage of the power of compound interest for a long time before you retire. This could potentially earn you hundreds of thousands of dollars. The best time to open a Roth IRA was yesterday. So go do it now!

7. Contribute as much as possible to your 401k

A 401k is basically an investment bank account that you can't use until you retire, and it will be taxed once you start using it (so it is not taxed now). Many employers offer 401k matching, and they open one up for you when you start your first job. If your employer offers 100% matching up to 6% of your salary, that means that if you can afford to put 6% of your income into your 401k, your employer will also contribute the exact same amount. Listen to me: this is free money. I like free money. You like free money. Take it.

8. Open a high-yield savings account

This is 2019. Don't keep your money in cash or in a regular savings account, where it'll depreciate 2-3% in value every single year it sits there. Get yourself a high-yield savings account, in which interest rates are anywhere between 2.0 and 2.25%, and watch your money make money while you sleep.

9. Start tracking your spending

Since it has become much easier to make quick and painless purchases these days, you should definitely be aware of your spending. I personally like to use a free app, like Mint, that does all the work for you because it puts all of your financial accounts (ie. savings and checking accounts, investments, loans, assets, etc.) into one place.

10. Create a monthly budget for each of your spending categories

These include food, housing, transportation, entertainment, subscriptions, health and wellness, and maybe more. You should know the things you always buy on a monthly basis and how much they typically cost. Comparing your budget to what you really spent after a month will show you exactly where your weaknesses are. Try to stay at or under your budget for each category every month unless there's an unusual event, like a vacation or a car repair.

11. Learn the basics of investing

Compared to the other tips on this list, this is one you can put on the back-burner for a bit. However, that doesn't make it any less important. It's critical for everyone who is financially independent to understand the basics of stocks, bonds, Exchange-Traded Funds, Mutual Funds, REITs, and more that you can use to diversify your portfolio, including in your new Roth IRA and 401k!

What are you waiting for? Up your financial game!

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