The Three Faces of the Resource Curse

The Resource Curse hinges on the argument that a nation with large natural resources, such as oil, will perform more poorly than nations that do not possess such resources. This was originally an economic concept and the performance in question was the economic growth of the economy. As Jeffrey Frankel described it in a 2010 NBER working paper:

It has been observed for some decades that the possession of oil, natural gas, or other valuable mineral deposits or natural resources does not necessarily confer economic success. Many African countries such as Angola, Nigeria, Sudan, and the Congo are rich in oil, diamonds, or other minerals, and yet their peoples continue to experience low per capita income and low quality of life. Meanwhile, the East Asian economies Japan, Korea, Taiwan, Singapore and Hong Kong have achieved western-level standards of living despite being rocky islands (or peninsulas) with virtually no exportable natural resources. Auty (1993, 2001) is apparently the one who coined the phrase “natural resource curse” to describe this puzzling phenomenon. Its use spread rapidly.

Therefore, we can look at slower economic growth and development as the first face of the Resource Curse.

In The Dictators Handbook, Bueno de Mesquita and Smith argue that having valuable natural resources can promote the development and survival of autocratic governments, thus putting a second or political face on the Resource Curse.  The argument here is that natural resources provide an income stream for political leaders that is largely independent of the government's economic policies. Resources such as oil, lumber, and minerals can be extracted without having a well functioning economy and a productive workforce (beyond those involved in the resource industries). Income from the resources provides a steady and easily controlled stream of income from which autocratic leaders can pay off their essential supporters and, thus, remain in power.

Because, such leaders are not primarily dependent on tax revenue from the domestic economy, they have little incentive to invest in public goods such as infrastructure and education that would promote economic growth (and greater tax revenue). Indeed, they face incentives to do the opposite in order to prevent the larger population from organizing a revolution to change the system. After all, the freedoms and resources that people need to conduct economic activities can also be used to carry out political activities that might threaten the regime. Being independent of tax revenue allows autocrats resource rich to deny these public goods to the population, and thus stay in power in addition to keeping the bulk of the nation poor.

In a recent post on the Monkey Cage, Ross and Voeten argue that resource wealth, specifically oil wealth has a third, global face to it. As they put it:

If a government anticipates that it can sell its main export irrespective of its foreign policy behavior, then abiding by bothersome international norms and institutions becomes less of a priority. A large fraction of the world’s rogue regimes – Iran, Venezuela, Sudan, Libya (under Qaddafi) and Iraq (under Saddam) – are financed by oil wealth.

They note that as most nations become economically and socially globalized,  they face incentives to become politically globalized by joining intergovernmental organizations and agreements. They also have incentives to international political norms to assure economic partners that they will also adhere to economic institutional norms. However, Ross and Voeten find that this is not the case for oil-rich nations. In their words:

We find that beyond a certain level of oil income (around $100 per capita) more oil wealth is correlated with sharply lower levels of political globalization.  Strikingly, this pattern shows up when we compare oil-rich states to oil-poor states, and when we look at individual states over time, as their oil production rises and falls. The findings also hold when we control for possibly confounding factors, such as democracy, economic development, and regional effects. We find very similar effects when we use other indicators to measure the degree to which states are integrated into and cooperate with international institutions.

This leads to what Ross and Voeten call "unbalanced globalization" and they argue it produces a set of nations upon which we are economically dependent but which are not "well integrated into the world’s political and legal institutional infrastructure".