Published online by Cambridge University Press: 13 June 2011
How does a state's natural resource wealth influence its economic development? For the past fifty years, versions of this question have been explored by both economists and political scientists. New research suggests that resource wealth tends to harm economic growth, yet there is little agreement on why this occurs. This article reviews a wide range of recent attempts in both economics and political science to explain the “resource curse.” It suggests that much has been learned about the economic problems of resource exporters but less is known about their political problems. The disparity between strong findings on economic matters and weak findings on political ones partly reflects the failure of political scientists to carefully test their own theories.
1 United Nations Conference on Trade and Development (UNCTAD), Commodity Yearbook 1995 (New York: United Nations, 1995Google Scholar).
2 I have deliberately omitted the extensive literature on the sociological impact of resource extraction on local communities. Important recent works include: Barham, Bradford, Bunker, Stephen G., and O'Hearn, Dennis, eds., States, Firms, and Raw Materials: The World Economy and Ecology of Aluminum(Madison: University ofWisconsin Press, 1994Google Scholar); Bunker, Stephen G., Underdeveloping theAmazon: Ex traction, Unequal Exchange, and the Failure of the Modern State (Urbana: University of Illinois Press, 1985Google Scholar); Frickel, Scott and Freudenburg, William R., “Mining the Past: Historical Context and the Changing Implications of Natural Resource Extraction,” Social Problems 43 (November 1996CrossRefGoogle Scholar); and Peluso, Nancy Lee, Rich Forests, Poor People: Resource Control and Resistance in Java (Berkeley: sity of California Press, 1992CrossRefGoogle Scholar).
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7 The correlation also remained significant when the records of six oil-rich, slow-growing economies-Saudi Arabia, Oman, Kuwait, the United Arab Emirates, Bahrain, and Iraq-were excluded from the database.
A 1982 study, which controlled for only population and secondary-school enrollment, found that for forty-eight developing states the level of export processing in 1955 was highly correlated with GNP per capita in both 1970 and 1977. See Stokes, Randall and Jaffee, David, “Another Look at the Export of Raw Materials and Economic Growth,” American Sociological Review 47 (June 1982CrossRefGoogle Scholar). An earlier study by Jacques Delacroix, using a cruder measure of export processing, produced negative results. See Delacroix, , “The Export of Raw Materials and Economic Growth: A Cross-National Study,” American Sociological Review 42 (October 1977CrossRefGoogle Scholar).
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12 While liberal and radical structuralists largely agreed on the problems of resource exports, they split over how to rectify them. Moderate structuralists favored a strong role for the state to buffer developing economies against international price shocks; to capture the economic rents that were repatriated by multinationals and to invest them in other sectors of the economy; and, for some, to use tariffs and quotas to promote import-substitution industrialization. Some also favored international commodity agreements to stabilize or improve the terms of trade for resource exporters; see Prebisch (fn. 9) and Hirschman (fn. 11).
The radical structuralists, who became identified with dependency theory in the 1960s and 1970s, were far less sanguine; they argued that capitalist governments in developing states would be unable to take the measures proposed by moderates as long as these governments were dominated by local elites who shared the class interests of the foreign multinationals. See Baran, Paul A., “On the Political Economy of Backwardness,” Manchester School of Economics and Social Studies 20 (January 1952CrossRefGoogle Scholar); Frank, Andre Gunder, “The Development of Underdevelopment,” Monthly Review 18 (September 1966Google Scholar); and Cardoso, Fernando Henrique and Faletto, Enzo, Dependency and Development in Latin America (Berkeley: University of California Press, 1979Google Scholar).
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22 The conclusions of these studies are sensitive to the way they measure export instability. See Behrman, Jere R., “Commodity Price Instability and Economic Goal Attainment in Developing Countries,” World Development 15, no. 5 (1987CrossRefGoogle Scholar); Tan, Gerald, “Export Instability, Export Growth and GDP Growth,” Journal of Development Economics 12 (February/April 1983CrossRefGoogle Scholar); Moran, Cristian, “Export Fluctuations and Economic Growth,” Journal of'Development Economics 12 (February/April 1983CrossRefGoogle Scholar); Singer and Edstrom (fn. 17); and Dawe (fn. 20). A model developed by Mendoza (fn. 18) predicts that terms-of-trade instability will reduce social welfare, regardless of its effect on growth.
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26 See fn. 12.
27 Fosu (fn. 20).
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29 The name was reputedly coined by the Economist in 1977. But the problem itself is much older. Davis (fn. 6) notes that in 1859 economist John Elliot Cairns described the same effect in Australia following the gold rush of the 1850s.
31 Some even argue that the Dutch Disease should not be considered a malady at all, since the shift of labor and capital toward booming resource sectors simply connotes a change in a state's comparative advantage. See, for example, Davis (fn. 6).
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34 Indeed, the model developed by Benjamin et al. (fn. 32) suggests that a resource boom may even lead to the expansion of a developing economy's manufacturing sector. Still, guarding against short-term deindustrialization may be important if a temporary drop in manufacturing output results in a long-term loss of comparative advantage, which may occur if there are industry-specific learning-by-doing effects that are external to the firm. See Arrow, Kenneth J., “The Economic Implications of Learning by Doing,” Review of Economic Studies 29, no. 3 (1962CrossRefGoogle Scholar); van Wijnbergen, Sweder, “The 'Dutch Disease': A Disease after All?” EconomicJournal 94 (March 1984Google Scholar); Krugman, Paul, “The Narrow Moving Band, the Dutch Disease, and the Competitive Consequences of Mrs. Thatcher,” Journal of Development Economics 27 (October 1987CrossRefGoogle Scholar); and Usui, Norio, “Policy Adjustments to the Oil Boom and Their Evaluation: The Dutch Disease in Indonesia,” World Development 24, no. 5 (1996CrossRefGoogle Scholar).
35 Neary and van Wijnbergen (fn. 30), 10–11. Other case studies by economists come to similar conclusions; see, for example, Gelb and associates (fn. 5); Wheeler (fn. 4); Bevan, David, Collier, Paul, and Gunning, Jan Willem, “Trade Shocks in Developing Countries,” European Economic Review 37 (April 1993CrossRefGoogle Scholar); Ridler, Neil B., “The Caisse de Stabilisation in the Coffee Sector of the Ivory Coast,” World Development 16, no. 12 (1988CrossRefGoogle Scholar); Urrutia and Yukawa, (fn. 33); and Schiff, Maurice and Valdes, Alberto, The Plundering of Agriculture in Developing Countries (Washington, D.C.:World Bank, 1992CrossRefGoogle Scholar).
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44 See, for example, the quotes at the beginning of this article.
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46 This is why export volatility is correlated with higher-than-normal savings rates, at least in the private sector; see fn. 20. On the proclivity of private actors in low-income countries to take precautionary measures against income fluctuations, see Townsend, Robert M., “Consumption Insurance: An Evaluation of Risk-Bearing Systems in Low-Income Countries,” Journal ofEconomic Perspectives (Summer 1995CrossRefGoogle Scholar); and Morduch, Jonathan, “Income Smoothing and Consumption Insurance” Journal of Economic Perspectives 9 (Summer 1995CrossRefGoogle Scholar).
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48 Schiff and Valdés(fn.35).
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58 William Ascher, Why Governments Waste Resources: The Political Economy of Natural Resource icy Failures in Developing Countries (Baltimore: Johns Hopkins University Press, forthcoming).
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64 The World Bank notes that privately owned tea plantations in both Sri Lanka and India are far more productive and profitable than state-owned tea plantations. See Bank, World, Global Economic Prospects and the Developing Countries (Washington D.C.:World Bank, 1996), 51Google Scholar.
65 In fact, when a state poorly enforces property rights to its natural resources, it may gain a comparative advantage in international trade; see Chichilnisky, Graciela, “North-South Trade and the Global Environment,” American Economic Review 84, no. 4 (1994Google Scholar).
66 On the concept of “protection rents,” see Lane, Frederic C., “Economic Consequences of Organized Violence,” Journal of Economic History 18 (December 1958CrossRefGoogle Scholar). Firms with highly specific assets, such as resource firms, are especially vulnerable to extortion; see Klein, Benjamin, Crawford, Robert G., and Alchian, Armen A., “Vertical Integration, Appropriable Rents, and the Competitive Contracting Process,” Journal of Law and Economics 21 (October 1978CrossRefGoogle Scholar).
67 Evidence of a link between resource extraction and extralegal violence can be gleaned from William Reno's intriguing history of the diamond industry in Sierra Leone's Kono District, Corruption and State Politics in Sierra Leone (New York: Cambridge University Press, 1995Google Scholar). See also Jonathan C Brown's fine study of oil firms during the Mexican revolution, Oil and Revolution in Mexico (Berkeley: University of California Press, 1992Google Scholar).
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