Resource curse

The main possible reasons for this may be :

• a decrease in the competitiveness of other sectors of the economy caused by an increase in the real exchange rate associated with the inflow of resource revenues into the country;
• high variability of income from the sale of resources on the world market ;
• mistakes in state regulation or the development of corruption associated with the influx of "easy" money into the economy;
• the lack of real motivation and the real need for the development of a real production sector, since raw materials incomes can maintain a certain stable standard of living under the current state system and structure of the economy (stagnation and stagnation);
• mining and agriculture with the sale of crude product - production with diminishing returns and a small multiplier . In the event that revenues from sales of raw materials are invested in the processing industry (industries with increasing returns and a large multiplier), this leads to economic growth. If commodity revenues are invested abroad or spent on luxury and means of consumption, non-commodity sectors of the economy are suppressed, losing long-term investments. An excess of the unemployed population is formed, the needs of which can be covered by subsidies from raw materials exports. If subsidies are not enough, domestic demand shrinks; if enough, revenues go to imported goods, as domestic production is degrading.

The term “ resource curse” was first used by Richard Auti in 1993 ^[3] to describe a situation in which countries rich in natural resources were unable to use this wealth to develop their economy and, contrary to intuition, had lower economic growth, than countries with less natural resources.

However, the idea that natural resources could be a curse of a country rather than an advantage began to emerge back in the 80s of the 20th century. Various studies, including the well-known work of J. Sachs and A. Warner ^[4] , traced the relationship between the abundance of natural resources and the country's weak economic development.

One of the most striking examples of the isolation of resource abundance from economic growth is oil-producing countries. So, in the period 1965-1998. GNP per capita growth in OPEC countries fell on average to 1.3%, while in other developing countries it averaged 2.2%. ^[five]

Some authors argue that the inflow of finance associated with foreign aid can have an effect on the economy similar to the resource curse. ^[6]

At the same time, it should be noted that many states with significant reserves of natural resources can achieve a high level of welfare and industrial progress. These include the United States (one of the richest fertile soils and mineral territories), Canada, Australia, to a lesser extent Spain (most types of minerals, favorable agricultural conditions in part of the territory), some countries of the Persian Gulf, Malaysia, Brunei, Norway (oil, gas, Norway also has the richest sources of hydropower).

In particular, Eric Reinert, in his famous work “ How rich countries became rich and why poor countries remain poor ”, indicates that the vicious circle of poverty in countries that even have rich resources is associated not with the resources themselves, but with a focus on monoproduction in industries with decreasing return and abuse of the theory of comparative advantage .

Conflicts

Natural resources can provoke conflicts in society, in which various groups and fractions struggle for the possibility of disposing of them ( rent-oriented behavior ). Sometimes this conflict manifests itself openly, as a separatist conflict in the regions where these resources are extracted (for example, such as in the oil producing province of Cabinda in Angola ), but more often they take hidden forms, such as the struggle between ministries or departments for access to budgetary funds , which leads to a decrease in the effectiveness of public administration in general.

The following main types of relationship between natural resources and armed conflict are distinguished. Firstly, the effects of the resource curse undermine the quality of government, thereby increasing the vulnerability of the state to conflicts caused by other factors. Secondly, conflicts can arise directly around the control and use of resources, as well as the distribution of revenues from their extraction. Thirdly, access to income from the resources of one of the parties to the conflict contributes to the continuation of conflicts ^[7] .

Scientific studies widely cite the fact that for a typical country, the share of primary resources export of which is about 25% of GDP , the probability of a conflict is 33%, and when the share of exports is 5% of GDP , it decreases to 6% ^{[8] [9]} .

Taxation

In a standard situation where society is not resource-dependent, the government levies taxes on citizens, which, in turn, require effective and responsible management. This interaction has become a kind of “ social contract ” between the government and citizens. In countries whose economies are based on natural resources, the government does not have to tax its citizens, as it has a guaranteed source of income from the extraction of natural resources. In these conditions, the social contract is violated, because the government does not feel bound by the obligations to effectively manage the state. Moreover, the part of society that receives income from the extraction of resources can consider effective state institutions and civil society threats to their well-being and deliberately undermine their formation.

As a result of this, the state poorly fulfills its direct duties and can impede the formation of civil societies, using the income from natural resources for this. Countries whose economies depend on natural resources tend to be more totalitarian, corrupt, and poorly managed.

Dutch disease

The Dutch disease is an economic phenomenon in which large revenues from the export of natural resources negatively affect the development of other sectors of the economy, increasing the nominal and real exchange rates of the national currency, as well as wages in the extractive industries.

An increase in the exchange rate and wages leads to a decrease in competitiveness in the world markets of other industries working for export, primarily agricultural and manufacturing.

In addition, the increase in budget revenues associated with the export of resources often entails an increase in government spending (for health, defense, etc.), which leads to a further increase in the real exchange rate and wages.

The resulting recession in manufacturing sectors and, as a result, even greater dependence on natural resources, makes the economy extremely vulnerable to adverse changes in natural resource markets.

Fluctuations in revenue

World market prices for natural resources are subject to significant fluctuations. So, the price of a barrel of crude oil rose from $ 10 in 1998-1999. to more than $ 140 in 2008, and in early 2009 fell to $ 50 .

If the state budget revenue is mainly generated from the export of natural resources (for example, according to the IMF , oil and diamonds accounted for 99.7% of Angola’s exports in 2005), these fluctuations bring chaos to government spending. The dramatic changes in the economic climate in the country resulting in massive breaches of contracts, undermining the stability of the economy.

Excessive borrowing

Since the government expects significant revenues in the future, it begins to accumulate debt, even if there are revenues from natural resources. This behavior is encouraged since the appreciation of the real exchange rate associated with capital inflows into the country or the Dutch disease leads to lower interest payments. The country's natural resources are used as collateral, increasing the size of a possible loan. However, with lower resource prices on world markets and a drop in the real exchange rate, the government has fewer funds to pay more expensive debt. For example, a number of oil-rich countries, such as Nigeria and Venezuela , have shown rapid growth in foreign borrowing during the oil boom of the 70s of the 20th century. However, when oil prices began to decline in the 80s, banks stopped further lending to them, which led to the inability of governments to pay on current debt and its growth due to penalties.

Corruption

In resource-rich countries, often the easiest way to maintain power is to redistribute wealth in favor of certain privileged sectors, rather than pursuing a balanced, growth-oriented economic policy and establishing clear rules of the game. Giant revenues from natural resources fuel this political corruption. The government in this situation has a lesser need for the formation of an institutional structure that regulates the country's economy outside the extractive sector, as a result of which the remaining sectors begin to lag significantly behind in development ^[10] .

Lack of diversification

The development of economic diversification may slow down or stop due to the temporary high profitability of natural resource extraction. At the same time, attempts to diversify often represent global public projects that may be improperly planned and poorly managed, again being reduced to a redistribution of resources.

Even in situations where the authorities are trying to diversify the economy, they face significant difficulties due to the fact that the extractive sector is more profitable than any other.

In this regard, the dependence of resource exporting countries on the extractive sector is growing over time. Despite the fact that this sector provides large incomes, it provides relatively few jobs and often functions as an isolated enclave, with insignificant links with other sectors of the economy.

Human Capital

In many poor countries, wages in extractive industries are many times higher than wages in other sectors of the economy. This attracts the most talented people from the private and public sectors to it, negatively affecting the latter, since it deprives them of the most qualified personnel.

Another possible effect of the resource curse is crowding out human capital from a country. States that rely on the export of natural resources may neglect the development of education , as they do not feel the immediate need for it. In contrast, resource-poor countries, such as Taiwan , Singapore, and South Korea , make great efforts to develop education, which was one of the components of their economic success (see East Asian tigers ).

It should be noted that this conclusion is disputed by some researchers. So, in one work ^{[11] it is} proved that natural resources generate relatively easily taxable annuities, which are more often used for the development of education.

• Etkind A. Petromacho, or Mechanisms of demodernization in a resource state // Non-Reserve. No. 88 (2/2013)
• Andrey Movchan Trap of the resource curse: from Kievan Rus to Venezuela // Lecture under the project "Faculty of Economics", organized by the InLiberty project and the Yegor Gaidar Foundation.
• Polterovich V. M. , Popov V. V., Tonis A. S. Abundance of natural resources, political corruption and the instability of democracy / WP # 2007/073 - M .: Russian Economic School, 2007
• Tambovtsev V., Valitova L. Curse of underdevelopment // Gazeta.ru
• The natural resource curse