Resource Curse

The resource curse, sometimes called the paradox of plenty, describes the empirical pattern in which states heavily dependent on oil, gas, or mineral exports tend to underperform on growth, governance, and human development relative to economies with more diversified bases. The term was popularised by economist Richard Auty in his 1993 book Sustaining Development in Mineral Economies, and the hypothesis was developed in influential work by Jeffrey Sachs and Andrew Warner in the mid-1990s, which found a negative cross-country correlation between natural resource exports as a share of GDP and subsequent growth rates.

Several mechanisms are proposed:

• Dutch disease: resource booms drive up the real exchange rate, making manufacturing and agriculture uncompetitive. The term originated with the Economist in 1977 describing the Netherlands after its Groningen gas discoveries.
• Revenue volatility: commodity price swings produce boom-bust fiscal cycles and procyclical spending.
• Rentier state dynamics: governments funded by resource rents rather than taxation face weaker accountability pressures from citizens.
• Institutional decay and corruption: concentrated rents invite rent-seeking, patronage, and weakened rule of law.
• Conflict risk: Paul Collier and Anke Hoeffler's work on civil war onset linked primary commodity dependence to higher conflict probability, though later scholarship (e.g. Michael Ross) has refined this to specific resources like oil and lootable minerals.

The thesis is contested. Norway, Botswana, and Chile are frequently cited as counter-examples where strong prior institutions, sovereign wealth funds, or fiscal rules blunted the curse. Scholars such as Halvor Mehlum, Karl Moene, and Ragnar Torvik argue institutional quality at the time of discovery determines outcomes. Policy responses include sovereign wealth funds, transparency initiatives like the Extractive Industries Transparency Initiative (EITI) launched in 2003, and fiscal stabilisation rules.