CGD in the News

What Resource Curse? (Foreign Policy)

December 7, 2010
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Foreign Policy published an opinion piece by senior fellow Charles Kenny on the Resource Curse.

From the article:

Bad news: Mozambique has just discovered between 6 trillion and 8 trillion cubic feet of gas sitting off its shoreline — quite enough for commercial production. This on top of a recent coal-mining boom is destined to make the country a major natural resource exporter. Joining the East African country in recent misfortune is Papua New Guinea, scheduled to start exporting $30 billion worth of natural gas, and Afghanistan — particularly blighted by the discovery of iron, copper, cobalt, gold, and lithium deposits with a combined value over $1 trillion.

How so? Enter the resource curse — the idea that the more stuff dug out from on or under a country, the slower it will grow and the higher the risk it will descend into civil war. Versions of the curse have been around for some time. Back in the 1970s, economists worried about "Dutch disease." Countries that exported a lot of gas or oil would see their exchange rates go up as a result. This, in turn, could make their manufacturing exports uncompetitive. But the idea really picked up steam in the mid-1990s, when Jeffrey Sachs and Andrew Warner, then both at Harvard University, found that countries that exported more agricultural products, minerals, and fuels saw slower economic growth.

Sachs and Warner highlighted Dutch disease and its knock-on effects as the likely cause. But other researchers looking at the same data argued that the link might be through empowering kleptocratic leaders with resource rents or the destabilizing political impact of easy money. In a matter of a few years, resource exports were charged with a host of ill effects — not least, low education spending, unstable government, civil war, corruption, and poor governance.

Read the article.