Natural Resources: Curse or Blessing?



CESifo Working Paper No. 3125

Natural Resources: Curse or Blessing?

Abstract

Are natural resources a “curse” or a “blessing”? The empirical evidence suggests either
outcome is possible. The paper surveys a variety of hypotheses and supporting evidence for
why some countries benefit and others lose from the presence of natural resources. These
include that a resource bonanza induces appreciation of the real exchange rate,
deindustrialization and bad growth prospects, and that these adverse effects are more severe in
volatile countries with bad institutions and lack of rule of law, corruption, presidential
democracies, and underdeveloped financial systems. Another hypothesis is that a resource
boom reinforces rent grabbing and civil conflict especially if institutions are bad, induces
corruption especially in non-democratic countries, and keeps in place bad policies. Finally,
resource rich developing economies seem unable to successfully convert their depleting
exhaustible resources into other productive assets. The survey also offers some welfare-based
fiscal rules for harnessing resource windfalls in developed and developing economies.

JEL-Code: C12, C13, E01, F43, K42, O41, Q30.

Keywords: resource curse, cross-country, panel and quasi-experimental evidence, Dutch
disease, institutions, corruption, financial development, volatility, Hotelling rule, genuine
saving, Hartwick rule, natural resource wealth management, sustainable development.

Frederick van der Ploeg
OxCarre, Department of Economics
University of Oxford
Manor Road Building
UK - Oxford OX1 3UQ
[email protected]

Revised 13 June 2010

I am grateful to the editor Roger Gordon, two anonymous referees, Rabah Arezki, Maarten Bosker,
Erwin Bulte, Paul Collier, David Hendry, Torfinn Harding, Roland Hodler, Mansoob Murshed, Steven
Poelhekke, Radek Stefanski, Tony Venables, David Vines, Klaus Walde, Cees Withagen, Aart de
Zeeuw and participants of the CESifo Area Conference on Public Sector Economics, 21-23 April
2006, Munich, the 6th Annual Meeting of the EEFS, Sofia, 2007, the 10th Anniversary Conference of
the Global Development Network, 2-5 February 2009 and seminars at the Kiel Institute of World
Economics, EUI, ISS, The Hague, Erasmus University Rotterdam, Amsterdam, Tinbergen Institute,
Tilburg, Pisa, Oxford University, Cambridge University, ETH Zurich, University of Birmingham and
University of Nottingham, and from participants in courses at Oxford University, the Tinbergen
Institute and the International Monetary Fund for many helpful comments and suggestions. This work
was supported by the BP funded Oxford Centre for Analysis of Research Rich Economies.



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