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Resource Curse

Resource Curse
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What Is the Resource Curse?

The resource curse is a term used to depict a paradoxical situation wherein a country underperforms economically, regardless of being home to valuable natural resources. The resource curse may likewise be called the resource trap or the paradox of bounty.

There are numerous possible explanations for this phenomenon, in any case, generally talking, it is believed to be brought about by too a large part of the country's capital and labor force being packed in just a couple of resource-dependent industries. By neglecting to make adequate investments in different sectors, countries can become vulnerable to declines in commodity prices, leading to long-run economic underperformance.

How the Resource Curse Works

The resource curse, or resource trap, is a paradoxical situation wherein countries with an overflow of non-renewable natural resources experience stale economic growth or even economic contraction. All the resource curse for the most part happens when a country starts to concentrate its production means on a single industry, like mining or oil production, and dismisses investment in other major sectors.

Now and again, the resource curse can likewise result from government corruption. In the event that a large share of national wealth is moved in just a couple of industries, the government could abuse its regulatory powers, for example, by granting valuable contracts in light of pay-offs. If too much labor and capital flows into just a small modest bunch of sectors, it might debilitate the remainder of the economy and mischief the country overall.

Countries with additional diversified economies will generally climate global economic cycles better than countries with concentrated economies.

This type of problem is many times seen in creating economies that have recently found large natural resource deposits. When a natural resource is found, available investment capital will in general incline toward this industry.

The new industry turns into a source of economic growth and relative economic flourishing, offering appealing wages, and empowering residents to invest their savings in the new industry. Over the long haul, this dynamic can lead to countries turning out to be extremely dependent on the price of that specific commodity, consequently making it hard to keep fostering the economy.

Real World Examples of the Resource Curse

Think about the case of Angola. Situated on the west bank of Southern Africa, Angola is home to nearly 30 million residents. Its economy, notwithstanding, is vigorously commodity-dependent, with oil products accounting for generally 90% of the country's [exports](/send out).

Angola's economy is very vulnerable to any large or supported decline in the price of oil, since practically the country's all's wealth is dependent on this one sector. In this sense, Angola might have been "cursed" by its large oil reserves.

Another country that depends vigorously on selling oil to different nations is Saudi Arabia. Luckily, not at all like Angola, Saudi Arabia has made moves to consistently diversify its economy away from crude oil exports. In 2010, crude oil represented 75% of Saudi Arabia's total exports. Fast forward to 2018 and this figure had declined to just more than 55%.

In the mediating years, Saudi Arabia prevailed with regards to expanding its exports of different manufactured goods that are connected with crude oil however lie further up the value chain. In doing as such, Saudi Arabia had the option to reduce its dependence on crude oil and move toward fostering its economy, making it less vulnerable to the resource curse.

Features

  • Angola and Saudi Arabia both experience the ill effects of the resource curse, albeit Saudi Arabia has had achievement broadening in recent years.
  • The resource curse alludes to countries that underperform economically, notwithstanding profiting from valuable natural resources.
  • All it primarily happens when a country concentrates its production means on a resource-dependent sector.
  • This can lead to turning out to be extremely dependent on the price of a specific commodity, making it hard to keep fostering the economy.