The resource curse is the sociological theory that, counterintuitively, an abundance of easily obtainable natural resources may encourage internal political corruption and/or exploitation of a nation's assets by other countries, and thereby actually hurt the prospects of a national economy. The theory is usually applied to mineralogically rich countries in Africa and fossil fuel-rich countries in the Middle East that have not realized their apparent economic potentials.

Revenues from state-owned natural resouces may free the state from the necessity of significant taxation, thus reducing accountability to citizens. Economic diversification may be neglected or delayed in the light of the temporary high profitability of the limited natural resources. The attempts at diversification that are financed are often grand public works projects which may be misguided or mismanaged. Some have suggested that a more effective mechanism would be to simply distribute revenues from state-controlled natural resources evenly among the population, as is done in the oil-rich U.S. state of Alaska.

Explanations for the curse

Economists have come up with several possible explanations for the curse. First of all, the revenues from natural resource exports may have adverse effects on the economy because they lead to an appreciation of the domestic currency. This hurts other (non-resource) industries because their products become more expensive on the world market, and exports generally fall. It may also lead to exchange rate volatility because the exchange rate fluctuates whenever global demand for the natural resource being exported changed. This phenomenon is also known as the Dutch disease.

Another possible explanation is the crowing out of human capital. Countries that rely on natural resource exports tend to neglect education because they see no immediate need for it. Resource-poor economies like Taiwan or South Korea, by contrast, spent enormous efforts on education, and this contributed in part to their economic success (see East Asian Tigers).

See also

• Dutch disease
• Rent-seeking
• Economy of Africa

External links

• Summary of research project on 'Resource Curse'
• Doctoral Course at Department of Economics: The Resource Curse