Rescuing the Resource Rich: How Can International Development Policy Help Tame the Resource Curse?

52 Pages Posted: 10 Jun 2010

Date Written: June 1, 2010

Abstract

It has become a generally recognised fact that being naturally endowed with the resources that other countries desire – such as oil, diamonds and copper – tends to make your people poorer, your leaders more corrupt and your country more likely to suffer from conflict. In general, the consequences of resource-led development tend to be negative, inducing slower growth, barriers to economic diversification, poor social welfare performance, and high levels of poverty, inequality and unemployment.

Since wealth is normally considered a benefit for those who own it, this irony – coined ‘the paradox of plenty’ by Terry Lynn Karl (1997) – has intrigued many. Yet while intellectually fascinating, the paradox has brought about some very real human consequences. Its array of negative effects have thwarted human development and kindled escalating social tensions in some of the world’s most vulnerable countries. With the high commodity prices seen in the early 2000s, more countries came to benefit from, and depend on, sizeable natural resource exports. Strong growth in China and India led to improvements in raw-material exporting countries' terms of trade and attracted complementary finance. The financial crisis and the ensuing fall in commodity prices illustrated the vulnerability of these countries’ resource dependence. Yet the challenge is not primarily low commodity prices. In resource-rich countries, where institutions are often fragile, avoiding the so-called “resource curse” and to capitalising on the resource revenues is crucial to sustainable growth.

Finding ways in which the international community can help resource rich countries tackle this impasse can improve not only the development in these countries, but also international security issues and improve global access to scarce resources. For resource rich countries as well as for international donors, therefore, the management of natural resources is both an indisputable factor in the development effort, and a problem which cannot easily be solved by aid in the traditional sense.

Norway’s and Chile’s experiences show that natural resource wealth can be a blessing rather than a curse, if the economic and institutional parameters are well-adapted to the task. These two countries have not continued growing despite natural resources. Rather the contrary: to a large extent their resource management has enabled increased growth and development. The success of the two countries is explored in this paper. It was to a large extent made possible not only through well-adapted macro-economic policy choices but through reliable and knowledgeable civil servants implementing the policy, through a relatively well-developed business community and through investment in human capital.

Suggested Citation

Havro, Gøril Bjerkhol and Santiso, Javier, Rescuing the Resource Rich: How Can International Development Policy Help Tame the Resource Curse? (June 1, 2010). Available at SSRN: https://ssrn.com/abstract=1622687 or http://dx.doi.org/10.2139/ssrn.1622687

Gøril Bjerkhol Havro

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Javier Santiso (Contact Author)

ESADE Business School ( email )

Mateo Inurria 27
Madrid, 28036
Spain

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