[A]cademics have largely failed to pin down the exact nature of the resource curse, as the situation varies extraordinarily from case to case. Friday, July 10, 2020 A renewable resource is a substance of economic value that can be replaced or replenished in less time than it takes to draw the supply down. Futures/Commodities Trading Strategy & Education, Real World Examples of the Resource Curse, Why Renewable Resources Are Becoming More Vital, Public Investment Fund of Saudi Arabia Definition. The latest oil price crash that triggered fiscal crisis in major petroleum-producing countries like Russia, Nigeria, and Saudi Arabia is one example of this negative effect. However, more recently, research has started to show that the resource curse is not as strong a theory as people first thought. Many “growth winners” such as Botswana, Canada, Australia, and Norway are rich in resources. “Oil importers may currently be enjoying the benefits of low prices while resource-rich nations struggle, but they can be sure – perhaps not today, perhaps not tomorrow, but eventually – prices will go up again. The first was the adoption of a predictable and responsible fiscal policy, balancing tax revenues and government spending. Take the price of oil for example. This may be because resource rents can lift incomes and provide hard currency for financing investment projects. Except where otherwise noted, content on this site is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. “It increases the exchange rate, thereby stifling other export industries. Future Development Following in the footsteps of Nigeria, Angola and the Democratic Republic of Congo, Uganda is the latest nation to suffer the effects of the resource curse. A country which finds natural resources will tend to have an appreciation of the exchange rate due to the resource effect. Despite volatile commodity prices, natural resource rents thus seem to advance economic development. Civil war is the most striking reason for delaying and reversing economic development. Countries with a rich source of wealth, especially, diamonds, gold silver can be more vulnerable to civil conflict with competing interests fighting for control of the natural wealth. The cumulative direct effect of resources on long-term development can thus be either positive or negative, depending on the balance between these offsetting effects. Countries endowed with valuable natural resources –most notably oil, natural gas, minerals, and diamonds – often also suffer from poor governance, high poverty, and conflict. Consequently Venezuela (like Nigeria) lost much of its agricultural sector due to its resource wealth. Often they are global multinationals, e.g. Please send comments or suggestions on accessibility to the site editor. The idea that natural resources actually hinder growth is known as the “curse” of natural resources.”, Kronenberg (2004) indicates, “The curse of natural resources is a well-documented phenomenon for developing countries. The third reason was the gradual opening up of financial and trade sectors. Future Development The fall of the agricultural sector and the rise of the oil industry and other service sectors have created high levels of immigration and internal migrations from rural zones to principle cities. According to a report by the UONGOZI Institute, entitled Managing Natural Resources to Ensure Prosperity in Africa, “How natural resources and associated revenues are managed will have a profound impact – for good or for bad – on the course of African economies and the prosperity of Africans. On the other hand, GDP per capita and physical capital development appear to benefit relatively more from the direct economic effects of resource booms. Empirical studies have revealed an apparent paradox: despite a few notable exceptions like the US, the richest countries today are, in general, rather poorly endowed with natural resources. The John A. Dutton e-Education Institute is the learning design unit of the College of Earth and Mineral Sciences at The Pennsylvania State University. Perhaps one reason is that where there are plenty of resources and things seem to be go well for a country, authorities, population, institutions, etc., become complacent. (The word ‘today’ is important here. For example, resource revenues can be used for political control through patronage spending and investments in security apparatuses. By using Investopedia, you accept our. Although the early resource curse literature documented a strong negative relationship between natural resources and GDP growth, a growing body of contradicting evidence has emerged. With little incentive to raise taxes or focus on sectors aside from fossil fuels, plentiful resources have succeeded largely in crippling once-fruitful economies and shrinking government responsibility. In this sense, Angola may have been “cursed” by its large oil reserves. Looking over all the studies of the research curse, economists have found that countries with a high abundance of natural resources don't on average have much lower economic growth, particularly when the quality of insititons and the level of how much investment countries get are controlled for.⁴ So perhaps the problem is more about institutions than it is about resources. Civil war in control of ownership. In doing so, Saudi Arabia was able to reduce its reliance on crude oil and take steps toward developing its economy, making it less vulnerable to the resource curse. Botswana is dependent on the diamond industry with 40% of GDP stemming from diamonds. It breeds corruption and embezzlement.