The 'resource curse' or 'Dutch disease' tries to explain why countries that are richer in natural resources are poorer, have less economic growth and are less democratic.¹ Its a paradox of economics - surely the countries and societies with the most valuable resources should be rich, not poor? What's going wrong?
Firstly, when so much of an economy relies on one single resource, it’s really vulnerable to price changes in that resource. Take the price of oil for example. It has been fluctuating, going up and down quite dramatically, for decades. In the last few years the price has dropped by almost a half. For countries that rely heavily on oil as a major part of its economy, such as Nigeria or Venezeula, these fluctuations can have big effects on the economy. In good times, when the price is high, countries may take on more and more foreign debt, as international businesses want to invest money in the booming economy. However, as the price of oil starts to fall they can be left without the revenues they need to pay back the debt. This process is particuly bad if the oil countries have bad institutions which fail to offset the changes in price.²
Secondly, not many jobs are created in selling natural resources, and because they tend to be owned by whoever happened to find them first, they’re linked to high inequality and concentration of power. In fact, the presence of natural resources greatly strengthens authoritarian and anti-democratic regimes. The ability to sell natural resources gives government's large amounts of revenue which can be used to buy weapons and to surpress dissent. This is why countries that have a greater abundaence of natural resources are more likely to be authoritarian.³
However, more recently, research has started to show that the resource curse is not as strong a theory as people first thought. Looking over all the studies of the research curse, economists have found that countries with a high abundance of natural resources don't on average have much lower economic growth, particularly when the quality of insititons and the level of how much investment countries get are controlled for.⁴ So perhaps the problem is more about institutions than it is about resources.