The Natural Resource Curse: Why Some Countries Avoid It While Others Do Not - Literature review Example

The Natural Resource Curse: Why Some Countries Avoid It While Others Do Not? Introduction Numerous civil wars that predominantly occurred in the countries rich for natural resources have raised substantial interest among the researchers. While attempting to analyse the reasons and factors influencing on these events, the researchers have found that “natural resources played a key role in triggering, prolonging, and financing” civil conflicts (Ross, 17). In academic world such a high correlation of richness for the natural resources and economic poverty of the country is also known as natural resource curse. This paper aims to provide a more detailed definition and description of the natural resource curse and to analyse the major triggers of this tendency. The analysis will be focused on exploring the reasons of why some countries avoid the natural resource curse while others do not. The Natural Resource curse defined The natural resource curse can be defined as a paradoxical situation whereas the countries rich for natural resources (such as oil and hard-rock metals, including diamonds, coltan, rubies, and other gemstones and resources) are poor in terms of economic development (Ross, 17). This paradox is considered to be a result of civil conflicts, feuds, and wars rising on the basis of a desire to possess these resources for one’s enrichment. Dependence on resources increases the risks of civil wars through two economic effects: an increase in poverty and a reduction in growth (Ross, 19). On the one hand, resource-dependent economies illustrate slower economic growth than do the resource-dependent economies, and this aspect increased the likeliness of civil conflict break out. On the other hand, the economies dependent on natural resources usually are much less committed to development of other sources of income and to providing healthcare and education for domestic population. Both these factors make the country more susceptible to global economic recessions and violent conflicts (Ross, 20). As Ross (17) explains, 17 recent conflicts are linked with the natural resources conflict. Gemstones, oil, natural gas, and illicit drugs are dominant resources in majority of conflicts. Africa, being one of the richest continents in natural resources, is one of the most “popular” regions in terms of resource-related conflicts. While African continent is rich in natural resources, there are other regions as well rich for natural resources. However, continuous armed conflicts mainly occur in developing world rather than in developed economies. The major issue therefore is to understand why some countries tend to avoid and prevent the conflicts based on natural resources, while other countries do not avoid it. The factors and reasons explaining why some countries do not avoid the natural resource curse There can be identified several major reasons of why some countries do not or fail to avoid the natural resource curse. Some of these reasons are briefly discussed below. No or Limited Opportunity for Diversification As it has been already identified, many resource-dependent countries are heavily reliant on the only once source of income – the income, generated by the exporting of the natural resources (Lederman and Maloney, 19). These countries do not diversify their export portfolio and get trapped into dependence of price volatility for primary commodities on the international market (Ross, 22). Dependence on a single export can lead to sharp declines in international trade and have harmful effect on the whole economy of a resource-dependent country (Lederman and Maloney, 19). The countries could probably develop downstream mineral and oil industries, and this to add value to raw materials and increase employment rate in the country due to the emergence of new manufacturing and processing enterprises. However, processed natural resources are subject to tariff barriers, which make these products less competitive on the international market (Ross, 22). Even if the government has used exports revenue by investing into programs promoting development, there could be undertaken some steps towards economic and social development (Stevens & Dietsche, 56). Hence, the countries making no such efforts obviously are not willing to decrease poverty and stimulate growth in a country. Corruption, weakness of state, and reduced accountability of government In addition to the influence on international market powers, some countries do not avoid the natural resource curse because of the initial problems on the government level. These problems include the following: corruption, weakness of the state, and unaccountability of government (Ross, 24). Government corruption is one of the major problems of government, which lead to major economic and social problems. The governments may practice resource-linked corruption when there is a sheer volume of resource revenues, as these revenues can be less effectively tracked and managed (Ross, 24). In addition to corruption factor, weak governments contribute to mismanagement of the natural resources. Thus, politicians and bureaucrats take personal advantage of natural resource wealth, rob their countries through engagements in rent seeking and corrupt business practices (Stevens & Dietsche, 57). Some governments become weaker and are less capable to resolve social conflicts because of natural resource wealth (Ross, 25). Highly valuable resources located in specific territories can be mined with little investment and training. In such districts the government may not ensure proper control and legislation implementation. This creates a fruitful soil for warlords, gangs, and rogue military officers (Ross, 25). Also, the weakening role of the government can be caused by a state’s bureaucracy which disables it to manage social conflicts in efficient way (Ross, 25). Besides corruption and weakness of government, there is the problem of reduced unaccountability of the government, which perfectly explains government’s mismanagement of natural resources. Governments that gain the incomes through natural resources tend to be more autocratic, and thus, less accountable as they become less dependent on taxes as a source of income (Ross, 25). Such a state is also knows as a ‘rentier state’ – the state where revenues generated by natural resources discourage democracy by eliminating a need to raise revenue through taxation (Wiens, 86). The government sets the policies that are beneficial for a limited number of groups or people, and ignores the interests of citizens (Wiens, 86). Thus, government becomes a major initiator of the natural resource curse as it robs its own population. Instead of investing money into public sector jobs, healthcare, and education, political institutions invest it into economically-unproductive spheres such as patronage (Wiens, 87). Thus, authoritarian leaders in resource-rich countries maintain their political power by using resource revenues for providing patronage to opposition. In this situation, resource revenues not only enrich corrupted governors but also diminish the likelihood of democratisation of society (Wiens, 86). Corruption and military enforcement also reduces democracy in the country, increases poverty, and leads to civil war (Ross, 26). Some of the examples of such scenarios have evidence in the history of Algeria, Liberia, the Democratic Republic of Congo, and Sierra Leone (Ross, 26). Lack of accountability and transparency make corruption more attractive, which makes it easier to capture rents, and create problems between citizens and the government (Willaims, 490). Lack of accountability and transparency from governments in extractive industries enables the governors to rob their own country filling in own pockets. Rent seeking firms and other groups offering bribes to the governors facilitate this effect (Butle and Damania, 5; Lederman and Maloney, 1). As a result, governors fail to introduce effective policies, and thus cause a slowdown of economic growth or increase of poverty in a country (Butle and Damania, 4). Therefore, the nature of a government institutions in resource-rich country plays a crucial role in explaining the cause of natural resource curse (Wiens, 85). This is one of the key reasons of why some countries do not avoid resource curse (Williams, 490). As it has been already mentioned, other governments supporting international rule that allow authoritative leaders to conclude legally valid resource transactions also undermine unaccountability of government and cause economic deprivations in developing countries (Wiens, 85). Influence of external factors and secessionist movements In addition to direct involvement of government to the natural resource conflict, there are external factors that also contribute to the natural resource curse. One of such factors is secessionist movements aiming to form a separate state. The government in such situations fails to establish a positive reputation and loyalty of the population, and becomes an enemy for the people, who distrust the government and feel being exploited or underpaid (Ross, 28). The situation is more heated with activities of the rebel organizations, financed through direct resource looting, sales of future exploitation rights to the spoils of war, and extortion and kidnapping (Ross, 32-33). When separatist movements are supported by external investors, pursuing the attainment of access/possession of a resource-rich territory, the government may have limited resources and be not ready for managing such attack (Ross, 30). These factors also leads to the failure to avoid the natural resource curse. Conclusion The natural resource curse is a paradoxical situation which occurs when the countries rich for natural resources are economically underdeveloped. While there are many countries rich for natural resources, some of these countries avoid the curse while other do not. There have been discussed many ideas of why this happens. The research has shown that one of the major reasons of natural resource curse in a poor country is the role played by the government in this specific country. The government of the country heavily dependent on single resource export is more vulnerable to international price volatility. Instead of reinvesting revenues to development of other industries or sectors, the government often spends money for funding patronage of opposition, thus pursuing purely political purposes. Corruption, weakness of state, and reduced accountability of government all are identified as major factors leading to devastation of economically poor but resource-rich countries. Authoritarian leaders in resource-rich countries strive to maintain their political power by using resource revenues for providing patronage to opposition. In this situation, resource revenues not only enrich corrupted governors but also diminish the likelihood of democratisation of society. In addition to direct involvement of government to the natural resource conflict, there are external factors that also contribute to the natural resource curse. One of such factors identified in this research is secessionist movements aiming to form a separate state. All these factors also leads to the failure to avoid the natural resource curse. Works Cited: Bulte, Erwin, and Richard Damania. "Resources For Sale: Corruption, Democracy And The Natural Resource Curse." B.E. Journal of Economic Analysis And Policy: Contributions To Economic Analysis And Policy 8.1 (2008): EconLit with Full Text. Web. 28 Feb. 2015. Lederman, Daniel, and William F Maloney. ‘Natural Resources, Neither Curse Nor Destiny’. Palo Alto, CA: Stanford Economics and Finance, an imprint of Stanford University Press, 2007. Ross, Michael, ‘The Natural Resource Curse: How Wealth Can Make you Poor,’ pp. 17-42, in I. Bannon and P. Collier (eds) in Natural Resources and Violent Conflict: Options and Actions, 2003, Washington D.C: World Bank. Web. 28 Feb. 2015. Stevens, Paul, and Evelyn Dietsche. Resource Curse: An Analysis of Causes, Experiences and Possible Ways Forward, pp: 56-65, Energy Policy 36.1, 2008, Web. 28 Feb. 2015. Wiens, David. Natural Resources And Government Responsiveness. Politics, Philosophy & Economics, 14.1 (2013), pp. 84-105. Web. 28 Feb. 2015. Williams, Andrew. ‘Shining a Light on the Resource Curse: An Empirical Analysis of the Relationship between Natural Resources, Transparency, and Economic Growth,’pp.490-505, World Development 39, 4, 2010, Web. 28 Feb. 2015. Read More