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The Resource Curse – What Have We Learned from Two Decades of Intensive Research: Introduction
ELISSAIOS PAPYRAKIS
ABSTRACT There has been increasing interest in the so-called ‘resource curse’, that is the tendency of resource-rich countries to underperform in several development outcomes. This has generated a mountain of (often contradictory) evidence leaving many floundering in the flood of information. This special issue compiles eight papers from some of the most prominent contributors to this literature, combining original research with critical reflection on the current stock of knowledge. The studies collectively emphasise the complexities and conditionalities of the ‘curse’ – its presence/intensity is largely context-specific, depending on the type of resources, socio-political institutions and linkages with the rest of the economy.
1. Introduction
There has been an increasing interest within the scientific and policy communities in the ‘resource curse’; that is, the tendency of resource rich (and mineral rich, in particular) economies to underperform in economic growth and other development outcomes. Academic interest has certainly been on the rise – a Google Scholar search shows that while there were only 13 scientific papers that explicitly referred to the so-called ‘resource curse’ in 1995, the number increased to 543 in 2005 and 2360 in 2015. This level of academic focus combined with greater awareness through media reporting has also influenced policy circles, as evident from the launching of several voluntary initiatives in recent years (such as the Extractive Industries Transparency Initiative [EITI], the Global Mining Initiative, the Responsible Mineral Development Initiative and the Kimberley Process Certification Scheme, just to name a few) that aim at improved transparency in the extractive sector and a more equitable and productive use of accrued rents.
Yet, after 20 years of intensive research and action, ‘the curse’ still lingers as a very real global problem, as evident from the multiple challenges many mineral-rich countries currently face. Mineral prices are highly volatile and their see-saw pattern often creates abrupt business cycles for mineral-dependent economies – oil rich Russia, Venezuela and Trinidad and Tobago have recently experienced severe economic contractions as a result of the plummeting oil prices. Saudi Arabia’s budget deficit soared to approximately $100 billion (or 15% of GDP) in 2015, prompting the kingdom to announce drastic cuts in fuel subsidies. In Brazil, the state-run oil giant Petrobras has been embroiled in a multi-billion corruption scandal since late-2014 with allegations that company funds were diverted to several politicians. Oil smuggling in Syria and Iraq has assisted the Islamic State to fuel its insurgency, with claims that the terrorist group has formed informal trading networks with other neighbouring countries.
Evidence on the impacts of mineral abundance/dependence on several development outcomes (economic growth, income levels, conflict, environmental quality, institutions/social capital, trade, debt and so forth) has been the subject of numerous studies in the last two decades (for recent reviews of the empirical literature, see Frankel, 2010; Gilberthorpe & Papyrakis, 2015; Ross, 2014). The evidence, though, has been far from conclusive, and in recent years there have been several studies disputing the universal existence of a resource curse (for example, see Brunnschweiler & Bulte, 2008; Cavalcanti, Mohaddes, & Raissi, 2011; Stijns, 2005, 2006). Nowadays, there is wider recognition that the resource curse is a much more complex phenomenon, the manifestation of which depends on several factors (for instance, on the type of natural resources, the way one measures their relative importance in an economy, the socio-political institutions in place and so forth).
As with any research field that produces such an abundance of information over a period of two decades, there is a need at a certain point in time to pause and critically reflect on what we have learned so far (and on the gaps that still remain to be filled). The objective of this special issue is, on the one hand, to provide a synthesis of the key messages that the scientific and policy community can draw based on the intensive research undertaken in the resource curse field. At the same time, it incorporates current original research in the field (with eight papers from some of the most prominent contributors to this literature), combined with a critical reflection on the current stock of knowledge. The studies included in the special issue reflect the current academic pluralism that characterises the resource curse literature with a mix of different methodological approaches (both quantitative and qualitative analyses) and a diverse geographical focus (Latin America, sub-Saharan Africa, global). They also examine a broad range of resource curse mechanisms (Dutch Disease, rent-seeking, conflict and so forth) and for several types of natural resources (oil, gold, diamonds and so forth). The studies collectively emphasise the complexities and conditionalities of the ‘curse’ – its presence/intensity being largely context-specific, depending on the type of resources, socio-political institutions and linkages with the rest of the economy.
The remainder of this Introduction to the Special Issue is organised as follows. Section 2 provides a critical review of the evolution of the resource curse literature and draws attention to some common issues emerging. Section 3 presents the eight papers of the special issue and their (theoretical/empirical) contribution to multiple research themes appearing in the resource curse literature. Section 4 provides a synthesis of key results presented in the special issue and offers some general conclusions.
2. The Resource Curse: The Evolution of the Literature
While interest in the resource curse intensified over the last two decades, some earlier work of development economists already in the 1950s focused on the possible adversities of mineral-based development; and more explicitly on the deteriorating terms of trade between primary products and manufactured goods, commonly referred to as the Prebisch-Singer hypothesis (a trend that was reversed during the 2000’s primary commodities boom – see Harvey, Kellard, Madsen, & Wohar, 2010 for a recent review of long-term historical trends, as well as the original papers by Prebisch, 1950; Singer, 1950). Subsequently, several economics studies concentrated attention also on the crowding-out effect of minerals on a diverse range of activities that encourage economic and broader development. In the 1980s (following the two oil crises of the 1970s), there was considerable academic interest into the mechanisms that link mineral booms with limited economic diversification and trade openness − Dutch Disease models (first developed by Max Corden and Peter Neary) explored how positive income shocks triggered by mineral discoveries and changes in prices can create either inflationary pressures that decrease the competitiveness of exporting firms or relocate production factors towards the primary sectors away from other tradable industries (these are the so-called Spending and Resource Movement effects; see the original papers by Corden & Neary, 1982; Corden, 1984; as well as subsequent variants, for example, Aizenman & Lee, 2010; Krugman, 1987; Matsuyama, 1992). These problems were thought to be further exacerbated by the fact that governments in mineral-rich nations often lacked far-sighted industrial competitive policies so as to protect entrenched interests in certain sectors (see Auty, 1994; Auty & Pontara, 2008; Murshed & Serino, 2011).
In the mid-1990s, two new studies re-ignited interest in the development impacts of natural resource abundance. In 1993, Richard Auty’s book with a selection of case studies exploring macroeconomic policy in mineral-dependent economies largely popularised the ‘resource curse’ as a term (see Auty, 1993). In 1995, Jeffrey Sachs and Andrew Warner provided the first cross-country empirical study that demonstrated a negative link between mineral abundance (measured by either the share of primary exports or mineral production in GDP in 1971) and long-term economic growth (measured by changes in GDP per capita between 1970–1989), as well as estimations of the underlying crowding-out mechanisms (that is, the negative links between mineral resources and trade openness, investment in physical capital, bureaucratic efficiency and inflation; see Sachs & Warner, 1995). Subsequently, much of the focus concentrated on the negative impact of natural resources on long-term economic growth with additional explanations behind the curse being put forward. For example, some studies claimed that mineral resource abundance can be related to a debt overhang, with mineral rich states using their natural reserves as collateral for debt in international markets (see Manzano & Rigobon, 2001; Sarr, Bulte, Meisner, & Swanson, 2011). Other studies claimed that investment in human capital (proxied by the share of educational expenditure in GDP or school enrolment rates) is correlated negatively with measures of mineral abundance (given that the extractive industries are often less human-capital intensive; see Birdsall, Pinckney, & Sabot, 2001; Gylfason, 2001; Papyrakis & Gerlagh, 2004). There has also been evidence suggesting that the price volatility of natural resources traded in international markets probably also contributes to macroeconomic fluctuations and uncertainty for foreign investors (see van der Ploeg & Poelhekke, 2009).
In more recent years, considerable interest grew towards the institutional explanations of the resource curse that look at how mineral resources can weaken pro-development institutions – for example, by fuelling rent-seeking and corruption (see Bulte, Damania, & Deacon, 2005; Isham, Woodcock, Pritchett, & Busby, 2005; Leite & Weidmann, 2002), reducing democratic accountability (by providing authoritarian regimes with the means to prolong their stay in power either through oppression or targeted redistribution; see Jensen & Wantchekon, 2004; Ross, 2001, 2009) and encouraging violent conflict (Collier & Hoeffler, 2005; Welsch, 2008; Wick & Bulte, 2006). Additionally, new analysis moved beyond growth impacts and instead explored negative links between mineral abundance and broader human development indices and sustainability indicators (for example, Atkinson & Hamilton, 2003; Bulte et al., 2005; Daniele, 2011; Dietz, Neumayer, & de Soysa, 2007).
The resource curse literature has become very diverse over time – while, at the beginning, most of the analysis focused on impacts at the macro/country level, several papers gradually shifted attention also to the meso (region) and micro (community) levels. Some recent papers have shown that mineral-rich and mineral-poor regions within sovereign countries also follow different development trajectories (and for reasons similar to the ones explaining cross-country differences; for example, see Papyrakis & Gerlagh, 2007 for the United States, Shao & Qi, 2009; Zhang, Xing, Fan, & Luo, 2008 for China, Papyrakis & Raveh, 2014 for Canada, Angrist & Kugler, 2008, for Colombia and for Russia Buccellato & Mickiewicz, 2009). In parallel, although quite independently, a separate substream of the resource curse literature, dominated by anthropologists, sociologists, ethnographers and other social scientists, has probed into the development impacts of the extractive industries at the micro/community level (see Bainton, 2008; Banks, 2007, 2009; Gilberthorpe, 2013, 2014; Golub, 2007; Hilson, 2006). This micro resource curse literature, as a result of the scholarly prevalence by non-economists, has examined the resource curse from a different angle; that is, with a closer fo...
