The resource curse , also known as paradox of plenty , refers to the paradox that countries with abundant natural resources (such as certain fossil fuels and minerals) tend to have less economic growth, less democracy and worse development outcomes than countries with fewer natural resources. There are many theories and many academic debates about the reasons and exceptions for these adverse outcomes. Most experts believe the resource curse is not universal or unavoidable, but it affects a particular country or region in certain circumstances.
Video Resource curse
Thesis resource curse
The notion that resources may be more an economic curse than a blessing began to emerge in debates in the 1950s and 1960s on the economic problems of low- and middle-income countries. The term curse resource was first used by Richard Auty in 1993 to illustrate how mineral-rich countries can not use that wealth to improve their economies and how, counter-intuitively, countries this has lower economic growth. from countries without abundant natural resources. An influential study by Jeffrey Sachs and Andrew Warner found a strong correlation between abundance of natural resources and poor economic growth. Hundreds of studies have now evaluated the impact of resource wealth on a wide range of economic outcomes, and offer many explanations as to how, why, and when resource curses may occur. While "lottery analogy has value but also has flaws", many observers attribute resource curses to the difficulty of winning lotteries struggling to manage the complex side effects of newfound wealth.
Scholarship on resource curses is increasingly shifting to explain why some resource-rich countries succeed and why others do not, not just investigate the average economic effects of resources. Research shows that the ways in which resource revenues are spent, the governance system, institutional quality, resource types, and early vs. industrialization the end has all been used to explain successes and failures.
Maps Resource curse
Economic effects
The IMF classifies 51 countries as "resource rich." These are countries that earn at least 20% of exports or 20% of fiscal revenues from non-renewable resources. 29 of these countries are low and middle income earners. The general characteristics of these 29 countries include (i) extreme dependence on resource wealth for fiscal revenue, export sales, or both; (ii) low savings rates; (iii) poor growth performance; and (iv) high volatile resource revenues.
The 2016 meta study found weak support for the thesis that resource wealth affects long-term economic growth. The authors note that "about 40% of empirical papers found negative effects, 40% found no effect, and 20% found positive effects" but "overall support for resource-resource curse hypotheses is weak when potential biases of publication and heterogeneity of methods are taken. A 2011 study in the journal Comparative Political Studies found that "natural resource wealth can be either" condemnation "or" blessing "and that differences are conditioned by domestic and international factors, both agreeing to change through public policy, namely, the formation of human capital and economic openness. "
Dutch disease
Dutch illness first became apparent after the Dutch discovered a large natural gas field in Groningen in 1959. The Netherlands sought to utilize this resource in an effort to export gas for profit. However, when the gas starts to flow overseas, so does its ability to compete with the exports of other countries. With the Dutch focus primarily on new gas exports, the Dutch currency began to appreciate, which jeopardized the country's ability to export other products. With the growth of the gas market and the shrinking export economy, the Netherlands began to recession. This process has been witnessed in various countries around the world including but not limited to Venezuela (oil), Angola (diamonds, oil), Democratic Republic of Congo (diamond), and various other countries. All of these countries are considered "damned by resources".
Dutch disease makes tradable goods less competitive in the world market. Without currency manipulation or currency benchmarks, currency appreciation can damage other sectors, leading to unfavorable trade balance compensation. As imports become cheaper in all sectors, internal employment suffers and hence the nation's skill and manufacturing infrastructure. This problem has historically affected the domestic economy of the great empire including Rome during its transitional period from the Republic, and the British Empire during the peak period of its colonial empire. To compensate for the loss of local employment opportunities, government resources are used to create employment artificially. Increased national income will often also lead to higher government spending on health, welfare, military, and public infrastructure, and if this is done corruptly or inefficiently, it can become an economic burden. While the decline in sectors affected by international competition and consequently even greater dependence on natural resource revenues makes the economy vulnerable to price changes in natural resources, it can be managed with the use of active and effective hedge instruments such as futures, futures, options and swaps , but if managed inefficiently or corrupt this can lead to poor results. Also, because productivity generally increases faster in the manufacturing sector than in government, so the economy will have lower productivity than ever before.
Income volatility
Prices for some natural resources experienced wide fluctuations: for example the price of crude oil rose from about $ 3 per barrel to $ 12/bbl in 1974 after the 1973 oil crisis and dropped from $ 27/bbl to under $ 10/bbl during the glut in 1986. In the decade from 1998 to 2008, it rose from $ 10/bbl to $ 145/bbl, before falling more than half to $ 60/bbl for several months. When government revenues are dominated by inflows of natural resources (for example, 99.3% of Angolan exports come from only oil and diamonds in 2005), this volatility can cause chaos with government planning and debt services. Sudden changes in the economic realities resulting from this often provoke widespread contracting or limitation of social programs, eroding the rule of law and popular support. The use of those responsible for financial hedging can reduce this risk to some extent.
This vulnerability to volatility can be increased when governments choose to borrow heavily in foreign currency. The real exchange rate increases, through capital inflows or "Dutch illness" can make this an attractive option by lowering interest payments on foreign debt, and they can be considered more credit worthy due to the presence of natural resources. If resource prices fall, the capacity of governments to meet debt payments will decrease. For example, many oil-rich countries such as Nigeria and Venezuela saw a rapid expansion of their debt burden during the 1970s oil boom; However, when oil prices fell in the 1980s, bankers stopped lending to them and many of them fell into arrears, sparking interest charges on the fines that made their debts grow even more. As Venezuela's oil minister and OPEC founder Juan Pablo PÃÆ'Ã… © rez Alfonzo warned in 1976: "Ten years from now, twenty years from now, you will see, oil will bring us harm... This is demon's shit."
A 2011 study in the Economic and Statistical Review found that commodities have historically always shown greater price volatility than manufactured goods and that globalization has reduced this volatility. Commodities are the main reason why poor countries are more volatile than rich countries.
Enclave effects
Economic diversification may be delayed or ignored by the authorities in light of the high temporary advantages that can be obtained from limited natural resources. Diversification efforts are often large public works projects that may be misdirected or mismanaged. However, even when the authorities try to diversify in the economy, this becomes difficult because resource extraction is far more profitable and competes with other industries. The success of resource-exporting countries often becomes increasingly dependent on extractive industries over time. The overwhelming income from natural resource extraction undermines long-term investments in infrastructure that will support a more diverse economy. This lack of investment exacerbates the negative impact of a sudden drop in resource prices. While the resource sector tends to generate substantial financial revenues, they often add some jobs to the economy, and tend to operate as pockets with little forward and backward connections to other parts of the economy.
Human resources
In many poor countries, the natural resource industry tends to pay far higher salaries than is available elsewhere in the economy. This tends to attract the best talents of the private and government sectors, destroying these sectors by depriving them of their best skilled personnel. Another possible effect of the resource curse is crowding out of human capital; countries that rely on exports of natural resources may tend to neglect education because they do not see the urgent need for it. Resource-poor countries such as Singapore, Taiwan or South Korea, by contrast, spend a lot of effort on education, and this contributes in part to their economic success (see East Asian Tigers). Other researchers, however, disputed this conclusion; they argue that natural resources generate taxable rent more often than not resulting in increased spending on education.
Revenue and work
A study of coal mining in Appalachia "suggests that the presence of coal in the Appalachian region has played an important part in the slow pace of economic development Our best estimate suggests that a 0.5 unit increase in the ratio of coal income to personal income in an area is associated with a decrease of 0, 7 percentage points in the income growth rate.No doubt, coal mining provides opportunities for jobs with relatively high wages in the region, but the effect on prosperity seems to be negative in the long term. "
Another example is the Spanish Empire that acquired the extraordinary wealth of resource-rich colonies in South America in the sixteenth century. Large cash flow from silver reduces incentives for industrial development in Spain. Therefore, innovation and investment in education are ignored, so the prerequisites for successful future development are stopped. Thus, Spain soon lost its economic power when compared to other Western countries.
A study of the US oil boom found a positive effect on employment and local income during the boom, but after the boom, "per capita" revenues declined, while "unemployment compensation payments increased relative to what would happen if the explosion did not happen."
Political effects
Natural resources are a source of economic rent that can generate substantial income for those who control them even without political stability and wider economic growth. Their existence is a potential source of conflict between factions fighting for a share of revenue, which can take the form of armed separatist conflict in areas where resources are produced or internal conflicts between different ministries or government departments for access to budget allocations. This tends to erode the government's ability to function effectively.
Even when politically stable, countries whose economies are dominated by resource extraction industries tend to be less democratic and more corrupt.
Violence and conflict
According to a study study 2017, "while some research supports the relationship between resource scarcity/abundance and armed conflict, others do not find or only weak links." According to one academic study, a country that is declared to be typical but has a major commodity exports of about 5% of GDP has a 6% risk of conflict, but when exports 25% of GDP, the chances of conflict increase to 33%. "Ethno-political groups are more likely to rebel than to resort to nonviolent means or become terrorists when representing oil-rich regions."
There are several factors behind the relationship between natural resources and armed conflict. Resource wealth can increase the country's vulnerability to conflict by undermining governance and economic performance (the "resource curse" argument). Second, conflicts can occur over the control and exploitation of resources and allocation of their income (argument "resource war"). Third, access to sources of income by belligerents can prolong the conflict (argument "source of conflict"). A study of 2018 in the Journal of Conflict Resolution found that rebels are likely to extend their participation in civil war when they have access to the natural resources they can smuggle.
The 2004 literature review found that oil makes war more likely and that delayed resources prolong the conflict. One study found that the mere invention (not just exploitation) of petroleum resources increases the risk of conflict, since oil revenues have the potential to alter the balance of power between the regime and their opponents, making current bargains obsolete in the future.. One study showed that the increase in mineral prices during the period 1997-2010 contributed to 21 percent of the average of state-level violence in Africa. Research shows that the decline in oil prices makes the oil-rich countries less angry. Jeff Colgan observed that oil-rich nations have a tendency to trigger international conflicts as well as their targets, which he calls "petro-aggression". Examples that can be debated include the invasion of Iraq to Iran and Kuwait; Libya's recurrent attacks on Chad in the 1970s and 1980s; Iran's long suspicion of Western powers; US relations with Iraq and Iran. It is not clear whether the petro-aggression patterns found in oil-rich countries also apply to other natural resources besides oil. A 2016 study found that "oil production, oil reserves, oil dependence, and oil exports are associated with a higher risk of starting conflict while countries that enjoy large oil reserves are more often the target of military action." By 2016, only six countries reporting their military expenditures exceeding 6 percent of GDP are significant oil producers: Oman, South Sudan, Saudi Arabia, Iraq, Libya, Algeria. (Data for Syria and North Korea are not available.) A 2017 study at the American Economic Review found that extraction mining contributed to conflict in Africa at the local level during the period 1997-2010. A 2017 study on Security Studies found that while there is a statistical relationship between oil wealth and ethnic warfare, the use of qualitative methods reveals "that oil is rarely a deep cause of ethnic warfare."
The rise of the Sicilian Mafia has been attributed to the resource curse. The early Mafia activity was strongly associated with Sicily's abundant sulfur cities, the most valuable export commodities in Sicily. A study of 2017 in the Journal of Economic History also connects the emergence of the Sicilian Mafia with a surge in demand for oranges and lemons after the 18th century discovery that citrus fruits cure scurvy.
A 2016 study argues that petrostate might dare to act more aggressively because of the inability of the allies of the great power to punish petrostate. Powerful forces have a strong incentive not to disrupt relationships with their client's petrostate allies for strategic and economic reasons.
A study of 2017 found evidence of a resource curse in the West American border period in the 19th century (Wild West). The study finds that "In places where mineral discovery occurs before a formal institution is established, there is more historical murder per capita and its effects persist to this day." Today, part of the killings and attacks described by the historical circumstances of mineral discovery are worth the educational or income effect. "
A 2018 study in the Economic Journal found that "oil price shocks are seen to encourage coups in onshore oil intensive nations, while preventing them in offshore oil intensive nations." The study argues that countries that have terrestrial wealth tend to build their military to protect oil, while nations do not do that for offshore oil wealth.
Democracy
Research shows that oil wealth lowers the level of democracy and strengthens autocratic government. According to Michael Ross, "only one kind of resource is consistently correlated with a bit of democracy and a worse institution: petroleum, which is a key variable in most studies that identify several types of curses. The 2014 meta-analysis confirms the negative impact of oil wealth on democratization. A 2016 study challenges conventional academic wisdom on the relationship between oil and authoritarianism. Another 2016 study found that unexpected fortune resources had no political impact on democracy and a strongly embedded authoritarian regime, but significantly exacerbated the autocratic nature of the authoritarian regime. A third study in 2016 found that while it is accurate that resource wealth has a negative impact on the prospects for democracy, this relationship has only occurred since the 1970s. A 2017 study found that the presence of multinational oil companies increased the likelihood of state repression. Another study 2017 found that the presence of oil reduces the possibility that democracy will be established after the breaking of the authoritarian regime. A study of 2018 found that the relationship between oil and authoritarianism primarily survived after the end of the Cold War; the study argues that without American or Soviet support, a resource-poor authoritarian regime must democratize while resource-rich authoritarian regimes are able to withstand domestic pressures to democratize.
There are two ways that oil wealth can have a negative impact on democratization. The first is that oil reinforces authoritarian regimes, making the transition to democracy less likely. The second is that oil wealth weakens democracy. Research generally supports the first theory but is mixed in the latter.
Both lines may be generated by the ability of oil-rich countries to provide citizens with a combination of generous benefits and low taxes. In many countries that do not rely on resources, the citizens of state taxes, which demand an efficient and responsive government in return. This bargain establishes a political relationship between the ruler and the subject. In countries where the economy is dominated by natural resources, the authorities do not have to burden their citizens because they have a guaranteed source of income from natural resources. Since citizens are not taxed, they have fewer incentives to be wary of how the government spends its money. In addition, those who benefit from the wealth of mineral resources can see effective and alert civil service and civil society as a threat to the benefits they enjoy, and they can take steps to thwart them. As a result, citizens are often poorly served by their rulers, and if citizens complain, money from natural resources allows the government to pay armed forces to keep people in check. It has been argued that rising and falling oil prices correlate with the rise and fall of human rights implementation in major oil-producing countries.
Members of a corrupt national government may conspire with resource extraction firms to override their own laws and ignore objections made by indigenous populations. The US Senate Foreign Relations Committee report titled "Petroleum and Poverty Paradox" states that "too often, the oil money that must be given to the country's poor ends up in the pockets of the rich, or may be squandered in large palaces and massive showcases. projects instead of being invested productively ". A 2016 study found that mining in Africa substantially increased corruption; an individual within 50 kilometers of the newly opened mine is 33% more likely to have paid a bribe in the past year than someone living within 50 kilometers of mines that will be open in the future. The former also paid bribes for permission more often, and considered their local councilors to be more corrupt.
The Global Development Center believes that governance in resource-rich countries will be enhanced by governments that make universal, transparent, and regular petroleum revenue payments to citizens, and then try to reclaim through the tax system, which they argue will encourage public demand. in order for the government to be transparent and responsible in the management of natural resource revenues and in the delivery of public services.
One study found that "export-dependent oil-producing countries to the US show lower human rights performance than those exporting to China". The authors argue that this stems from the fact that US relations with oil producers formed decades ago, before human rights became part of its foreign policy agenda.
One study found that resource wealth in authoritarian countries lowered the chances of adopting the Freedom of Information Act (FOI) law. However, resource-rich democracies are more likely than resource-poor democracies to adopt KIP legislation.
One study examining oil wealth in Colombia found "that as oil prices rise, legislators affiliated with right-wing paramilitary groups win more offices in oil-producing cities, consistent with the use of power to gain power, positive price shocks as well encourage increased paramilitary violence and reduce electoral competition: fewer candidates are running, and winners are elected by a broader margin of votes.In the end, fewer centrist MPs are elected to office, and there are diminishing representation in the center. "
Distribution
According to a study in 2017, "social forces condition the extent to which oil-rich countries provide important public services to the population, although it is often assumed that oil wealth leads to the establishment of a distributive country that generously provides services in the areas of water, sanitation, education , health care, or infrastructure... a quantitative test reveals that oil-rich countries undergoing demonstrations or riots provide better water and sanitation services than oil-rich nations that do not experience such disagreements. experience non-violent and mass-based movements providing improved water and sanitation services than those who experience violence, mass-based movements. "
Gender inequality
Research links gender inequality in the Middle East with a wealth of resources, as well as the problem of "petro-sexual politics" in Nigeria. A US study found similar results: resource wealth leads to lower levels of female labor participation, lower number of voters and fewer seats held by women in the legislature.
International cooperation
The study found that the more countries that depend on oil exports, the less cooperative they are: the less likely they are to join intergovernmental organizations, to accept the compulsory jurisdiction of international legal bodies, and to agree to binding arbitrations for investment disputes.
Foreign help
There are arguments in the political economy that foreign aid can have the same negative effects in the long run towards development as in the case of resource curses. The so-called "condemnation of aid" is the result of providing poor political incentives to the weak bodies of civil servants, reducing the politicians' accountability to citizens and reducing economic pressures thanks to revenues from unused resources to reduce the economic crisis. While foreign aid is a major source of income for governments and especially in low-income countries, the country's development capacity precludes undermining the responsiveness of taxpayers or by reducing incentives for governments to seek different sources of income or increased taxation.
Criticism
A 2008 study argued that the curse was lost when it did not see the importance of exporting resources in the economy but at different sizes: the relative abundance of natural resources on the ground. Using these variables to compare countries, the report reports that resource wealth on the ground is correlated with slightly higher economic growth and fewer armed conflicts. That high dependence on resource exports correlates with policies and adverse effects is not due to the large level of resource exports. The causes are opposite: conflicts and bad policies create a great dependence on natural resource exports. When the chaos and economic policies of the country scare off foreign investors and send local businessmen abroad to seek better opportunities, the economy becomes unstable. The plant may close and the business can run away, but the petroleum and precious metals remain to be picked up. Resource retrieval becomes the "default sector" that still works after other industries are stopped.
A 2011 article examining the long-term relationship between natural resource dependence and regime types worldwide from 1800 to 2006 reported that the increased dependence of natural resources did not induce authoritarianism. With a focus on reducing the methodological bias of previous studies, the authors found evidence to suggest that increasing dependence on natural resources encourages democratization, the opposite of what the Resource Curse declares. Researchers provide qualitative evidence for this fact in several countries here, and in other articles; as well as evidence that there is no relationship between resource dependence and authoritarianism in Latin America. The main methodological bias of previous studies, the authors claim, is the assumption of a random effect: "Many sources of bias may push the results [previous studies on resource curses], the most seriously eliminated variables bias caused by certain unobservable time heterogeneities and time- invariant. "In other words, this means that states may have the specific and lasting properties left out of the model, which can increase the power of explanation of the argument. The authors claim that this possibility occurs larger when assuming a random effect, an unfeasible assumption for what the author calls "unobserved country-specific heterogeneity".
This criticism itself is subject to criticism. One study re-examined the Haber-Menaldo analysis, using Haber and Menaldo's own statistical data and model. It reports that their conclusions only apply to the period before the 1970s, but since around 1980, there has been a resource curse being uttered. Writers Andersen and Ross suggest that oil wealth is only a barrier to democratic transitions after transformative events in the 1970s, allowing developing country governments to capture oil rents previously sucked by foreign-owned companies.
A 2008 article by Thad Dunning argues that while resource revenues can promote or strengthen authoritarian regimes, under certain circumstances they can also promote democracy. In countries where natural resource rent is a relatively small part of the economy as a whole and the non-resource economy is uneven, rental resources can strengthen democracy by reducing the fear of economic elites will surrender power because social welfare policies can be funded by rent resources and not redistribution. Dunning proposed consolidating Venezuelan democracy during the oil boom of the 1970s as a key example of this phenomenon.
Source of the article : Wikipedia
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