Resource curse

The resource curse, also known as the paradox of plenty or the poverty paradox, is the hypothesis that countries with an abundance of natural resources (such as fossil fuels and certain minerals) have lower economic growth, lower rates of democracy, or poorer development outcomes than countries with fewer natural resources. There are many theories and much academic debate about the reasons for and exceptions to the adverse outcomes. Most experts believe the resource curse is not universal or inevitable but affects certain types of countries or regions under certain conditions. As of at least 2023, there is no academic consensus on the effect of resource abundance on economic development.

The idea that resources might be more of an economic curse than a blessing first emerged as early as 1711, with English publication The Spectator noting, "It is generally observed, that in countries of the greatest plenty there is the poorest living." The idea gained further traction during debates in the 1950s and the 1960s about the economic problems of low and middle-income countries. In 1993 Richard Auty first used the term resource curse to describe how countries rich in mineral resources were unable to use that wealth to boost their economies and how, counter-intuitively, these countries had lower economic growth than countries without an abundance of natural resources. An influential 1995 study by Jeffrey Sachs and Andrew Warner found a strong correlation between natural resource abundance and poor economic growth. As of 2016, hundreds of studies have evaluated the effects of resource wealth on a wide range of economic outcomes, and offered many explanations for how, why, and when a resource curse is likely to occur. While "the lottery analogy has value but also has shortcomings", many observers have likened the resource curse to the difficulties that befall lottery winners who struggle to manage the complex side-effects of newfound wealth.

As of 2009, scholarship on the resource curse has increasingly shifted towards explaining why some resource-rich countries succeed and why others do not, as opposed to just investigating the average economic effects of resources. Research suggests that the manner in which resource income is spent, the system of government, institutional quality, type of resources, and early vs. late industrialization all have been used to explain successes and failures.

Since 2018, a discussion has emerged concerning the potential for a resource curse related to critical materials for renewable energy. This could concern either countries with abundant renewable energy resources, such as sunshine, or critical materials for renewable energy technologies, such as neodymium, cobalt, or lithium.

Bruce Bueno de Mesquita, who developed selectorate theory, explains that when an autocratic country has lots of natural resources, the ruler's optimal strategy for political survival is to use that revenue to buy the loyalty of critical support groups and oppress the rest of the population by denying them civil liberties and underfunding education and infrastructure. Education, liberty, and infrastructure can make the people more productive, but they also make it easier for them to organize opposition movements. Since the ruler can obtain sufficient revenue from his country's natural resources, he has no need for a productive populace and therefore does not have to risk liberalization. By contrast, in a dictatorship with few natural resources, there may be a necessity for the ruler to liberalize his society somewhat so that the economy can be organized more efficiently, and to invest in education and healthcare to create a skilled and healthy workforce. Bueno de Mesquita cites Ghana and Taiwan as examples of countries where the rulers permitted democratization out of necessity.

The International Monetary Fund classifies 51 countries as "resource-rich," which are defined as countries that derive at least 20% of exports or 20% of fiscal revenue from nonrenewable natural resources; 29 of those countries are low- and lower-middle-income. Common characteristics of the 29 countries include (i) extreme dependence on resource wealth for fiscal revenues, export sales, or both; (ii) low saving rates; (iii) poor growth performance; and (iv) highly volatile resource revenues.

There is no consensus view on the effect of natural resource abundance on economic development. Publishing in 2022, academic Jing Vivian Zhan observes that different studies, all with supporting empirical evidence, show contradictory findings on this point, as well as whether the effects vary across different historical time periods. Whether studies look at short-term or long-term economic effects of resource abundance may also result in different conclusions.

A 2016 meta-study found weak support for the thesis that resource richness adversely affects long-term economic growth. The authors noted that "approximately 40% of empirical papers finding a negative effect, 40% finding no effect, and 20% finding a positive effect" but "overall support for the resource curse hypothesis is weak when potential publication bias and method heterogeneity are taken into account."