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Published byAnabel Caroline Lloyd Modified over 7 years ago
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The resource curse The resource curse, also known as the paradox of plenty, refers to the paradox that countries and regions with an abundance of natural resources, tend to have less economic growth and worse development outcomes than countries with fewer natural resources.
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Negative effects and causes
The ambitions of the people and the government conflict. This is due to the large amount of resources and money the government amass for their own luxuries rather than for the people. Thus natural resources serve as a curse for the people, who then have a lower relative standard of living
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Excessive borrowing Since governments expect more income in the future, they start accumulating debt. In addition, the country's natural resources act as collateral leading to more credit. However, if the natural resources' prices begin to fall, and if the real exchange rate falls, a government would have less money with which to pay. For example, many oil-rich countries like Ni-geria and Venezuela saw rapid expansions of their debt burdens during the 1970s oil boom; however, when oil prices fell in the 1980s, bankers stopped lending to them and many of them made their debts grow even more.
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Corruption In resource-rich countries, many extractive operations are illegal and encouraged by corrupt multi-national corporations in collusion with national governments. Objections made by indigenous inhabitants are usually ignored. “Too often, oil money that should go to a nation’s poor ends up in the pockets of the rich, or it may be squandered on grand palaces and massive showcase projects instead of being invested productively”.(US Senate foreign relations committee)
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Human Resources Another possible effect of the resource curse is the crowding out of human capital; countries that rely on natural resource exports may tend to neglect education because they see no immediate need for it. On the reverse, resource-poor economies like Singapore, Taiwan or South Korea, by contrast, spent enormous efforts on education, and this contributed in part to their economic success (East Asian Tigers).
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