Resource Curse (Economics) - Explained
What is the Resource Curse?
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Table of ContentsWhat is the Resource Curse?How the Resource Curse Occurs?Resource Curse ExampleAcademic Research on the Resource Curse
What is the Resource Curse?
The resource curse is a situation where a country that enjoys an abundance of natural resources (non-renewable natural resources such as fossil fuels) has little or no economic growth and is economically unstable. This situation connotes a nation that is plenteous in natural resources suffering amidst the abundance. The resource curse is a paradox, it is sometimes called the 'Dutch disease' or 'the paradox of plenty.' As depicted by the resource curse, countries with enormous natural resources have less democracy and are highly undeveloped than countries with limited natural resources. Such countries also face conflicts, political challenges, and economic difficulties.
How the Resource Curse Occurs?
The resource curse does not just happen to countries, it is as a result of certain actions by these countries. Usually, it is observed that when a country makes a major natural resource discovery, such a country tends to focus all it has on the mining of the natural resource to the extent that other aspects of the economy suffer. When this happens, the economy becomes more volatile and becomes poorer or less economically stable, despite the surplus of non-renewable natural resources. When a country fails to diversify its economy but only focus on mining natural resources, the resource curse can take effect. The curse thrives when the government fails to realize that a new industry such brings economic growth when other industries are also harnessed. There are certain ways countries attempt to break the resource course, for instance, countries like Russia, Venezuela, and Saudi Arabia have begun to develop new strategies to strengthen their economy rather than being dependent on natural resources.
Resource Curse Example
The resource curse is commonly called the Dutch disease, given certain happenings and activities in the Netherlands after a major natural resource discovery took place. When natural gas was discovered in the Netherlands, the economy focused only on this newly found industry at the expense of other existing industries. When this happened in the Netherlands, many skilled workers and experts were moved from different sectors to focus on the natural gas sector, the economy became largely undiversified, which had an overall negative effect on the economy. Therefore, despite the discovery of natural gas in the Netherlands, the country was economically unstable and was under the resource curse until it was able to scale through.
Academic Research on the Resource Curse