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What is the Resource Curse?

The Central African Republic. Venezuela. Iraq. Syria. The Democratic Republic of the Congo.


Qatar. Saudi Arabia. Brunei. Turkmenistan. Azerbaijan. 


The first five countries are struggling with severe internal humanitarian disasters and armed conflict.


The second five have been under stable authoritarian rule for decades. 


Each of these ten countries is endowed with extraordinary natural wealth in minerals or oil. Why do they suffer from economic instability and political authoritarianism? Could their very wealth in natural resources be the cause?


This paradox is called the resource curse and several explanations have been proposed.


One idea is that natural resource wealth causes an unhealthy dependency on natural resource exports, as economic investment is focused almost exclusively on resource extraction. High natural resource exports may depress exports in other sectors through exchange rate mechanisms.


This lack of economic diversification can be disastrous if natural resource prices fall. For example, Venezuela entered into its current economic crisis in 2014 as oil prices fell dramatically, leading to economic and political turmoil. 


In many highly developed countries, national wealth is produced by having a highly educated, highly skilled and highly productive workforce. Therefore, the wealth of the state is tied to the people themselves, which creates a certain accountability and positive incentives to improve standards of living.


In contrast, natural resources aren’t a source of wealth tied to the people. They are easy to centralize in just a few companies and to exploit with foreign labor and expertise. States cursed with natural resources may rely on natural resource revenue instead of the economic potential of their populations.


This may mean that an educated middle class, often a driving social force for democratization, will not form and that a small elite will control state revenues merely by controlling key natural resources, creating a favorable environment for authoritarianism.


What’s more, natural resources are a tangible goal for military action and may encourage separatist movements or foreign invasions.


Sources:

Brown, Ethan. “The Resource Curse: Fact or Myth?” Peril & Promise, 8 Apr. 2022, www.pbs.org/wnet/peril-and-promise/2022/04/the-resource-curse-fact-or-myth/.

Cheatham, Amelia, et al. “Venezuela: The Rise and Fall of a Petrostate.” Council on Foreign Relations, 29 Dec. 2021, www.cfr.org/backgrounder/venezuela-crisis.

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