The Myth of the Resource Curse

November 8, 2012

As the United States becomes a major energy producer, will it become subject to the resource curse? Probably not. If the phenomenon really does exist, it flourishes in countries that lack strong institutions, governmental accountability, and already diverse economies, says Kori Schake, a research fellow at the Hoover Institute.

In economics, it is called the paradox of plenty: Resource rich countries tend to have lower rates of economic growth, and rarely mature into diversified and stable economies.

In political science, it is called the resource curse: Nations with economies revolving around specific resource extraction industries are more prone to civil unrest, authoritarian regimes and higher corruption.

  • A World Bank study reports that primary commodity exports parallel with greater instances of conflict.
  • Countries in which commodity exports account for 25 percent of gross domestic product (GDP) have a 33 percent chance of civil unrest; whereas, a similar country exporting 5 percent of GDP would have only a 6 percent chance of unrest.

Closer examination indicates that it is the nation's institutional quality that plays a bigger role. Countries with lower levels of development have the challenges of governance and societal violence that the resource curse prophesizes.

  • The resource curse falsely attributes causation to a country's reliance on extraction operations, but this relationship is merely correlative.
  • For instance, Nigeria is not badly governed and underdeveloped because it struck oil; it is just badly governed.
  • By extension, reducing Nigeria's reliance on oil is not going to improve its development.
  • Indeed, Norway is not becoming Nigeria because it is a major oil producer, and Australia is unlikely to fall under authoritarian regime despite its pursuit in mining.

Accountable governments, following the rule of law, are a better indicator of socioeconomic development. In short, governance, not industries, define the economic fate of a state.

  • Therefore, the United States can capture promising economic benefits from being a supplier of gas.
  • Trade balance will be altered as oil imports are reduced and gas has becomes a major export.
  • Moreover, as oil declines as a percentage of U.S. energy consumption, Americans will have greater latitude in engaging with oil producing economies.

Source: Kori Schake, "The Myth of the Resource Curse," Hoover Institution, October 25, 2012.

 

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