What Is the Problem with Natural Resource Wealth ?

There is a curious phenomenon that social scientists call the " resource curse " (Auty 1993). Countries with large endowments of natural resources, such as oil and gas, often perform worse in terms of economic development and good governance than do countries with fewer resources. Paradoxically , despite the prospects of wealth and opportunity that accompany the discovery and extraction of oil and other natural resources, such endowments all too often impede rather than further balanced and sustainable development. On the one hand, the lack of natural resources has not proven to be a fatal barrier to economic success. The star performers of the developing world—the Asian Tigers (Hong Kong, Korea, Singapore, and Taiwan)— all achieved booming export industries based on manufactured goods and rapid economic growth without large natural resource reserves. On the other hand, many natural resource–rich countries have struggled to generate self-sustaining economic take off and growth and have even succumbed to deep economic crises (Sachs and Warner 1995). In country after country, natural resources have helped to raise living standards while failing to produce self-sustaining growth. Controlling for structural attributes , resource-rich countries grew less rapidly than resource-poor countries during the last quarter of the twentieth century. Alongside these growth failures are strong associations between resource wealth and the likelihood of weak demo cratic development (Ross 2001), corruption (Sala-i-Martin and Subramanian 2003), and civil war (Humphreys 2005). This generally bleak picture among resource-rich countries nonetheless masks a great degree of variation. Some natural resource– rich countries have performed far better than others in resource wealth management and long-term economic development. Some 30 years ago, Indonesia and Nigeria had comparable per capita incomes and heavy dependencies on oil sales. Yet today, Indonesia's per capita income is four times that of Nigeria (Ross 2003). A similar discrepancy can be found among countries rich in diamonds and other nonrenewable minerals akin to oil and gas. For instance, in comparing the diamond-rich countries of Sierra Leone and Botswana, one sees that Botswana's economy has grown at an average rate of 7 percent over the past 20 years while Sierra Leone has plunged into civil strife, its gross domestic product (GDP) per capita actually dropping 37 percent between 1971 and 1989 (World Bank Country Briefs). The United Nation's Human Development Index illustrates the high degree of variation in well-being across resource-rich countries (Human Development Report 2005). This mea sure summarizes information …