Editor in Chief Celine Park explains the resource curse that negatively affects many countries dependent on natural resources for economic development.
Opinion – By Celine Park – The Myriad News
Natural Resources Can Actually De-stimulate Economic Growth and Development
On the surface, a country’s rapid economic growth could be thanks to its abundance in natural resources. In the 1950s, economists hypothesized industrializing natural resources could help “backward” countries develop their economies.
While there is definitely a relationship between natural resources and wealth, recent political scholars have found that countries relying on a single natural resource to bolster the national economy actually have little to no economic growth. As a result, these countries are less likely to have democratic government systems.
The resource curse has various political and economic consequences
The hypothetical concept of natural resources diminishing potential economic development is widely referred to as the resource curse. The “curse” is that an over-reliance on a natural resource can bring many economic and political consequences.
The causal mechanisms supporting this claim are actually quite simple. Countries that have an abundance of a certain natural resource want to monetize it quickly and easily. Countries would have less incentive to invest in other sectors of the economy. Over-reliance on a natural resource is dangerous to a nation’s economy because most money-making resources such as fossil fuels, minerals, metals and groundwater are nonrenewable.
Furthermore, if countries solely depend on exporting their resources to other countries for profit, they would experience extreme fluctuations in their domestic economy, as it would mirror an often fluctuating international commodities market. Resource-dependent countries tend to undergo boom-and-bust cycles, and also overspend on the resource industry.
The resource curse doesn’t just affect countries’ economies. Countries would try to enforce political decisions that align with their natural resource sector, often leading to corruption. To maintain streamlined production, governments would also be more inclined to exploit laborers working in resource extraction sites, stripping them of their rights.
Many MENA Countries Over-Rely on Oil Production
The resource curse is prominent when discussing oil production in the Middle East and North Africa. Oil was first discovered in Persia (modern day Iran) in 1908, and for the rest of the 20th century oil greatly transformed many MENA economies.
Nigeria, the largest producer of oil in Africa, is indicative of the resource curse. Oil revenues per capita in Nigeria, for example, increased from 33 U.S. dollars to 325 U.S. dollars from 1965 to 2000. By 2000, 98 percent of export earnings consisted of oil and gas exports. However, to this day Nigeria has extreme wealth stratification, and remains to be amongst the world’s top 15 poorest countries. Nigeria is also a member of the Organization of Petroleum Exporting Countries, an IGO experiencing a steady decline in GNP annually for the past decade.
Non-democratic, resource-cursed countries have less transparent government expenditures
Many countries suffering from the resource curse are non-democracies. This correlation can first be explained through taxation. In resource-poor countries, citizens pay taxes, which the government uses to fund public projects. Because of government expenditure transparency, citizens are more likely to pay attention to how exactly that money is being spent, and as a result will be more inclined to voice their opinions for or against the government’s actions. Citizens having the agency to speak out against government policies is crucial for a legitimate democratic society to form in that country.
In resource-rich countries, extractive industries pay taxes, which makes government expenditure more secretive. Thus, citizens are less likely to scrutinize their government. Due to countries overspending on their natural resource sector, funding for infrastructural and educational systems is neglected, decreasing not only quality of life but also the ability for citizens to properly understand their rights. An extremely important factor of democratic societies is the degree of civic engagement, whether that is in the form of social movements, interest groups, public protests, or through social media.
Taken from Natural Resource Governance Institute: https://resourcegovernance.org/sites/default/files/nrgi_Resource-Curse.pdf
Non-democratic, resource-cursed countries are more prone to violent conflict
Another aspect that explains why resource-dependent countries have non-democratic governments is because of violent conflict over control of the country’s natural resources. According to the Natural Resource Governance Institute(NRGI) Index Score, since 1990 oil-producing countries are twice as likely to engage in civil war in comparison to countries that do not produce oil. African countries such as Libya, Angola, Zimbabwe, Sudan, Eritrea and the Democratic Republic of the Congo fit this mold.
Resource Governance Index Country Scores and Rankings
In addition to civil wars, a country’s dependency on natural resource extraction and production can cause international conflicts, too. Wars that center around control for oil reserves are referred to as “petro-aggression”. A petrostate (a country dependent on oil production) is 250 percent more likely to engage in international conflict. Petro-aggression is deeply-rooted in causes for conflicts such as the Biafran War in the late 1960s, the United States’ invasion of Iraq in 2003, and the Heglig Crisis between Sudan and South Sudan in 2012.
Democratization is much easier in resource independent countries
The connection between violent conflict and regime change is crucial to understanding the resource curse. Regime change often occurs during times of civil conflict. Throughout the 20th century, especially after global decolonization, newly developing countries had the option to become a democracy or a non-democracy.
Many scholars have pointed out that it is harder for resource-dependent countries to shift to a democratic form of government. This could be because resource extraction and production is done by industries run by a small group of citizens, or even state-controlled, which results in a huge wealth gap. This leads to less opportunities for a strong, educated middle class to emerge, and the strengthening of authoritarian control. Democratization—or lack thereof—can be compared between two Latin American countries: Venezuela and Chile.
Inflation rates in Venezuela from 1980 to 2015
One of the co-founders of OPEC and the fifth largest oil-exporting country in the world, Venezuela was one of the richest Latin American countries in the 1970s due to an oil boom. By 1977, Venezuela, Costa Rica and Colombia were the only three democracies in Latin America. However, Venezuela’s rising inflation rates as a result of oil-dependency coupled with former president Hugo Chavez’s failed economic plan in 1999 resulted in the country shifting from a democracy to a dictatorial regime. According to the 2020 Freedom House Index, Venezuela received a score of 16/100 (scoring 2/40 in political rights and 14/60 in civil liberties).
Correlation between government revenue growth and expenditure growth in Venezuela
Inflation rates in Chile from 1981 to 2021
In contrast, Chile’s economy does not depend solely on fossil fuels. The country experienced a shift in government from a military dictatorship led by General Augusto Pinochet in 1973 to a stable democracy in 1989.
Although Chile is known to have high economic inequality, it still has a relatively diversified economy. Furthermore, according to the NRGI Index Score, Chile is very transparent regarding expenditures in both of its oil and mining industries.
Resource-poor countries in East Asia fared better than resource-rich countries in Latin America
Latin American, oil-dependent countries such as Venezuela, Ecuador and Bolivia are also subject to the resource curse. Although Venezuela experienced an oil boom in the 1970s, its economy was tied to oil production since the 1920s.
The country continued to practice import-substituting industrialization (ISI), which reduces foreign dependency by increasing dependency of local production. From the 1950s to the 1980s much of Latin America implemented ISI in hopes of further developing domestic economies; this era is defined by the term “Latin-American structuralism.”
In contrast, in the 1970s and 1980s, “Asian Tigers” South Korea and Taiwan experienced drastic economic growth. Interestingly enough, both East Asian countries are resource-poor, and abandoned ISI policies while Latin American countries were becoming increasingly dependent on them. Although the historical, cultural, and societal contexts of Asian Tigers differ from those of most Latin American countries, it is still interesting to compare the two in terms of economic growth and development.
Additionally, unlike oil-dependent countries in Latin America, all four Asian Tigers (South Korea, Singapore, Taiwan and Hong Kong) shifted to democracies from the 1960s to 1990s. Therefore, the correlation between resource independency and democratization is clearly plausible.
There are exceptions to the resource curse theory
Although the resource curse explains the majority of historical and governmental shifts in our world, there are of course exceptions to every hypothesized argument, one of these success-stories being Botswana, the second-largest diamond producer in the world. Before, scholars believed Botswana would become one of the many failed African states post-decolonization, but the country proved them wrong.
Starting out as an extremely weak state, Botswana gained independence in 1966, and unlike its war-ridden neighbor Zimbabwe, it peacefully transitioned into a representative democracy, creating more room for economic growth. Furthermore, instead of overspending on the diamond industrial subsidies, Botswana’s government steadily provided its citizens with satisfactory public services. 2015, Botswana reached a per capita income of almost 18,000 U.S. dollars, and in the same year scored 3 out of 24 on the State Fragility Index—the second best SFI score in all of Africa.
State Fragility Index Score: Botswana compared to resource-dependent African countries in 2020
The resource curse is one part of a whole argument when discussing democracy
It is extremely important to understand the resource curse theory when thinking about why certain countries are democracies, and others aren’t.
In an even broader context, the resource curse theory allows us to realize the complexity of finding solutions to worldwide issues.
The United Nations’ Sustainable Development Goals (Goal 8 being Decent Work and Economic Growth, Goal 9 being Industry, Innovation and Infrastructure and Goal 12 being Responsible Consumption and Production) outline the major problems related to the resource curse, but in reality, the resource curse affects all areas of a country’s economy, politics, government, and society.