The evidence supports this theory. Evidence backing the

 

The ‘resource curse’ is a
controversial term which has split and polarised academics since it was first
coined by Auty in 1993. It has been brought to prominence by high-profile
academics such as Collier who has argued that an abundance of natural resources
significantly increase the risk of a country succumbing to war (Collier & Hoeffler, 2004, p. 588). Collier is perhaps
the highest profile academic who has taken a position on this topic, and he has
gone on to publish multiple policy recommendations for the World Bank,
demonstrating the far-reaching and real-life implications of the resource curse
theory.

 

There is general agreement in the
literature over the definition of the resource curse. It is agreed that the
resource curse refers to the idea that natural resources play a negative role
in the development of a state. Proxies which are commonly used to measure the
extent to which a country is ‘resource rich’, often examine the make-up of a state’s
GDP and how reliant it is on primary commodity goods. For example, Sachs and
Warner (1995) and Collier and Hoeffler (2004) use the ratio of primary
commodity exports to GDP, whilst Gylfason et al., (1999) use the percentage of
the labour force in the primary sector. Whilst there is broad agreement on a
rough definition of the resource curse there is disagreement within the
literature on whether empirical evidence supports this theory.

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Evidence backing the theory is mostly
derived from large ‘N’ empirical studies, often measuring several decades. Exemplifying
this, Sachs and Warner found a negative correlation from 1970-1990 between
economic growth and exports of natural resources. However, this empirical
evidence is not without its critics. Maloney argues that to view the true
impact of natural resources it is necessary to view their economic effect in
the very long run, and their impact “cannot be convincingly summarised by … one
highly turbulent 20-year period” (2002, p. 1). Supporting this
viewpoint, Haber and Menaldo (2011) found that evidence either backing the
theory or disproving it varied upon which timeframe is being studied. Auty
(2001) argues that there is evidence that pre-1970s resource abundant states
grew at the same level as resource deficient states before growth stalled from
1970 to 1990. However, despite the controversy over the evidence which backs the
‘paradox of plenty’, a huge body of literature has arisen which tries to
explain why natural resource endowment may be a curse. This essay will now
critically examine the social, political and economic arguments expounded in
the literature which attempt to explain the theory.

 

Social factors which may explain the resource curse
include Collier and Hoeffler’s (2004) argument that an abundance of resources
increases the risk of conflict. They argue that primary commodity exports can
be used as an easy way for rebel groups to finance insurgency activities and
more so, the opportunity to get rich fast from exporting natural resources may
act as an incentive for rebel groups to go to war. Collier and Hoeffler argue
for the greed side of the ‘greed versus grievance’ debate in explaining the
causes of civil war, but this view is open to considerable dispute. David Keen disagrees
with the large N scientific methods used by Colliers’ study when the variables
and dates have been chosen arbitrarily (Keen, 2008).
Keen also goes on to argue that civil war and conflict is too complex for the
causes to be simplistically labelled into one of two groups, i.e. greed or
grievance. The large N study conducted by Collier removes the context of each
state, something which is surely essential to consider when examining the
causes of conflict. The correlation or causation question can also be asked in
the context of this argument. Is the relationship found by Collier and Bannon
(2003) that conflict is more prevalent in resource rich states, caused by
natural resources or simply correlated to them? Collier can be expected to
argue that the relationship is a causal one, however natural resources in
themselves do not start wars, i.e. diamonds or oil do not possess the ability
to pick up guns and start shooting people. There are also other examples which
support the contrary argument, in other words where countries hold significant
natural resources but have suffered from no meaningful violent conflict, with
Botswana and Norway demonstrating this.  

 

A second social factor which is
often used as an explanatory variable in support of the resource curse is the
inequality that natural resources can cause domestically. Stevens (2015, p. 23-24)
argues that in resource rich states, the economy is sustained by a small number
of actors generating the clear majority of a country’s wealth, which means the
wealthy elites will fight to protect the status quo, inevitably creating huge
inequality. This argument does appear to have some credence and is backed up by
empirical evidence. Gylfason and Zoega (2002, p. 32) found evidence that
increased natural capital (in the form of resources) perpetuated inequality.
This study also found evidence that discovering natural resources led to
decreased economic growth and undermined democracy. One possible explanation of
this is ‘rentier state’ theory which will be discussed below.

 

Rentier state theory is another
explanation of why natural resource endowment may be a curse. Ross (2001, p. 356)
finds empirical and conclusive evidence that oil does impede democracy and he
uses rentier state theory to explain why this may be the case. A rentier state
is defined by Beblawi and Luciani (1990, p. 87-88) as a state where the economy
depends heavily on an external rent (money), where most of the rent goes
directly to the government, and to such an extent that diverse domestic
industry is not required. This means that only a small proportion of the
working population is involved in generating income for the state, creating
vast inequalities as discussed above. It also means that citizens in rentier
states often pay little or no tax. Conventional rentier state theory and its
impact on democracy is articulated by Hachemaoui (2012, p. 6) who states that
countries that draw most of their GDP from primary commodity resource exports such
as hydrocarbons need not develop monetary accountability. This institutional
flaw leads to low levels of transparency and low political representation and
has the effect of “loosening the vital ties between the government and the
population and … promotes authoritarianism” (2012, p. 6). Tangible examples
of this theory would include the Gulf States in the Middle East, such as Qatar,
United Arab Emirates and Oman, which are all states with massive hydrocarbon
resources yet lack democracy. The lack of necessity for taxes in rentier states
and the subsequent lack of economic accountability which follows does seem to be
a convincing explanation as to how natural resources and in particular oil may
hinder democratic performance.  

 

From an economic perspective,
‘Dutch disease’ is a term often used as an argument for why natural resources
may harm a state’s economy and may slash economic growth. Dutch disease as a
theory developed in the late 1970s after a large oil field was discovered in
Groningen in Holland (The Economist, 1977). The term is
explained by Hachemaoui (2012) where he
describes how massive inflows of revenue from the discovery of a natural
resource can cause an appreciation in a country’s exchange rate, having the
effect of making all other exports less competitive. This can cause states to
become dependent on the export of one commodity and this lack of economic
diversification causes fiscal vulnerability. Economies become dependent on the
price of a single good, and natural resource prices are notoriously prone to
fluctuations. Gylfason (2001, p. 856) empirically links abundant natural
resources to decreased education spending. He attempts to explain this by
arguing that this economic dependency on a single or small number of natural
resources leads a state to predominantly focus on this sector, and as a result
spending on other domestic services, such as education may fall. This lack of
focus on education can help perpetutate the undiversified economy, where
reliance remains on the export of these natural resources, demonstrating how ‘Dutch
disease’ could also hold weight as a potential explanatory variable.

 

To summarise, the resource curse
theory is a controversial subject which splits academics. There is evidence
supporting its existence, but this evidence is not without criticism. Moreover,
whilst there are examples of states which appear to have succumbed to the
resource curse such as the Democratic Republic of the Congo, there are other
states such as Botswana with an abundance of natural resources and no apparent
‘paradox of plenty’. Therefore, these counter examples demonstrate that the
resource curse “is not an iron law” (Auty, 1994,
p. 12)
and as Gylfason (2001) argues, what may matter more to the development of a
state is not the abundance of natural resources on their own, but how effective
institutional governance is at managing them.