how the resource curse works
the resource curse is a paradoxical situation in which countries with an abundance of non renewable natural resources experience stagnant economic growth or even economic contraction although there may be multiple reasons to explain why a resource curse happens the phenomenon mainly occurs when a country begins to focus all of its production means on a single industry such as mining or oil production and neglects investment in other major sectors also called a resource trap or paradox of plenty it may also result from government corruption if a large share of national wealth is concentrated in just a few industries the government might abuse its regulatory powers such as by awarding valuable contracts based on bribes an overabundance of labor and capital that flow into just a small handful of sectors may weaken the rest of the economy and harm the country overall this type of problem is often observed in developing economies that discover large natural resource deposits once a natural resource is discovered available investment capital tends to gravitate to this industry this new industry becomes a source of economic growth and relative economic prosperity offering attractive wages and encouraging citizens to invest their savings in the new industry in the long run this dynamic can lead to countries becoming very dependent on the price of that particular commodity subsequently making it difficult to continue developing the economy the term resource curse is attributed to richard auty who wrote about the concept in his 1993 book titled sustaining development in the mineral economies the resource curse thesis 12special considerationsthe resource curse is considerably noticeable when it comes to one particular natural resource petroleum the political science department at the university of california los angeles conducted a study analyzing the correlation between natural resource wealth and politics it concluded that a resource curse did exist in petroleum rich countries 1according to the study three harmful and largely unresolved effects were evident in these countries the study cited the use of the term resource curse in countries in africa latin america the middle east and the former soviet union this brings out the importance of diversification if a country is too dependent on one or two resources it can have severe and negative effects to its economy countries with more diversified economies tend to weather global economic cycles better than countries with concentrated economies real world examples of the resource curselocated on the west coast of southern africa angola is home to some 34 million citizens 3 its economy however is heavily dependent on commodities particularly oil and gas resources according to the international trade administration roughly 75 of angola s national revenues come from the oil and gas sector 4angola s economy though is extremely vulnerable to any large or sustained decline in the price of oil since virtually all of the nation s wealth is reliant on this one sector in this sense angola may have been cursed by its large oil reserves another country that relies heavily on selling oil to other nations is saudi arabia the value of the kingdom s oil exports exceeded 202 1 billion in 2021 5 but unlike angola saudi arabia took steps to steadily diversify its economy and move away from its resource curse saudi arabia succeeded in increasing its exports of various petroleum related manufactured goods but these lie further up along the value chain in doing so the nation reduced its reliance on crude oil and take steps toward developing its economy making it less vulnerable to the resource curse some of the most notable industries that are flourishing include 