The 'Resource Curse' That Keeps Some Countries Poorer
Business

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?

137
The 'Resource Curse' That Keeps Some Countries Poorer

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.

Report this Content
This article has not been reviewed by Odyssey HQ and solely reflects the ideas and opinions of the creator.
Swoon

119 People Reveal How The Pandemic Has Affected Their Love Lives, And Honestly... Relatable

"I haven't been able to get out of the 'talking phase' with anyone."

The reality is, there's no part of life the pandemic hasn't affected. Whether it's your work life, your home life, your social life, or your love life, coronavirus (COVID-19) is wreaking havoc on just about everything — not to mention people's health.

When it comes to romance, in particular, people are all handling things differently and there's no "right way" of making it through, regardless of your relationship status (single, taken, married, divorced, you name it). So, some of Swoon's creators sought out to hear from various individuals on how exactly their love lives have been affected since quarantine began.

Keep Reading... Show less
Health and Wellness

Everything You Need To Know About Macronutrients, Because A Diet Should Be More Than Calories

Pay attention to what you're eating, not just how much you're eating.

Plenty of people are familiar with the "calories in, calories out" (CICO) method of dieting which can be used for losing, gaining, or maintaining weight. This method relies on calculating a person's total daily energy expenditure (TDEE) to ensure that they are not overeating or undereating to achieve their desired weight. TDEE considers a person's height, weight, age, gender, and level of activity to determine what their caloric intake should be — some calculators can factor in body fat percentage as well. When I used a TDEE calculator online, it said that my TDEE would be 1,990 calories if I was trying to maintain my weight, but are all calories created equal? I'd argue that they're not.

It might seem obvious to some of you that 1,990 calories of macaroni and cheese are not healthy at all compared to 1,990 calories of varied foods (fruit, veggies, meat, bread, etc.).

Keep Reading... Show less
Politics and Activism

Dear Closeted Latina,

You were never alone.

Remember how the Latin world got rocked when Ricky Martin came out?

Keep Reading... Show less
Photo by Omar Lopez on Unsplash

I'll admit it, when I first met you, I wasn't sure how well things were going to work out. Although I didn't know you that well at the time, we seemed to be opposites in almost every way. You were cool, edgy, and laid-back, and I was more awkward, goofy, and anxious.

Keep Reading... Show less

It wasn't until I hit 23 years old that I started getting hangovers. It could've been from two glasses of wine or even a margarita at happy hour, the next day, consider me bed-bound until further notice.

Keep Reading... Show less

Whether you're in an unhealthy relationship currently, you know someone who is, or you just want to have these numbers saved just in case it could one day save someone's life (if not your own), this article is for you. Here are three numbers to save in your contacts ASAP so you can always be safe, both physically and mentally, in every relationship.

Keep Reading... Show less
Politics and Activism

If I Unfriend You During The 2020 Election, Yes, It's Personal

President Donald Trump and Joe Biden's plans for Black America matter.

The Black Lives Matter movements have sparked widespread conversations and protests across the nation. With justice not being served for the murders of innocent Black people like Breonna Taylor and absolutely no support from President Donald Trump, this upcoming election is quite important.

Keep Reading... Show less

The Caribbean is a place where people go for vacation, but if you set out from a cruise ship you miss out on all the beautiful culture. Their exotic beaches are nothing without their zinging food and hospitality. Locals in the Caribbean are warmhearted with a zest to live life to the fullest.

This is exactly where most of their words and phrases come from, having a good time. I definitely enjoyed myself living in the Caribbean, but it's not always about lounging. They get work done too and I've learned proper phrases for accomplishments.

Keep Reading... Show less
Featured

What's Coming To And Leaving Netflix In August For Your Summer Viewing Pleasure

Just in time for another your end of summer binge-watch list.

Flower Films, Warner Bros, New Line Cinema

August is here, which means we will be losing some of our Netflix favorites but gaining some new ones. Here is a list of TV shows and movies we will be losing and gaining on Netflix during August.

Keep Reading... Show less
Health and Wellness

Feel A Lil' Better: Because Air Travel Looks Different Now

If you have to travel, you can — you just have to take a few extra steps.

No matter how good (or bad) you'd describe your health, one thing is for sure: a little boost is ALWAYS a good idea. Whether that's reading a new, motivating book, or listening to a song that speaks to your soul, there are plenty of resources to help your health thrive on any given day.

As we are learning how to live our lives in the midst of a pandemic, one big question being travel. States that were initially labeled coronavirus (COVID-19) epicenters, like New York and New Jersey, are extra cautious in how freely residents can travel and then come home. Other states may not have the same travel restrictions as the epicenters, but one thing is for sure — no matter where you fly within the United States, that trip will look different than your usual summer vacation. Sure, it can still happen, you just need to take a few more steps to make sure your trip will go smoothly.

Keep Reading... Show less
Bobbie Hall

I've seen too many people faking various conditions to claim that they cannot wear face masks right now. Often, the claim is asthma and other breathing conditions. I figured it's time for people to hear from those who actually have these conditions. Not only are these people at a higher risk for serious complications after contracting COVID-19, but many of them also have been wearing face masks before this pandemic began. Take my mom, for example. As someone with damaged lungs, she has been using face masks for years. For those with compromised lungs, face masks protect from bad air-quality, dust, and other hazardous things that can be breathed in.

I figured hearing the facts from the source is the best way to hinder the spread of false information. I interviewed my mom about what life is really like for those with compromised lungs during this pandemic.

Keep Reading... Show less
Facebook Comments