Resource curse and dutch disease

Skeptics have questioned the natural resource curse, pointing to examples of commodityexporting countries that have done well and arguing that resource endowments and booms are not exogenous. Prepared by atsushi iimi1 authorized for distribution by godfrey kalinga june 2006 abstract this working paper should not be reported as representing the views of the imf. What are the natural resource curse and dutch disease. The resource curse 3 economic explanations of the resource curse 4 the effect on nonboom tradable sectors and the dutch disease 4 skill accumulation and the resource curse 5 the boomsector. This paper explores whether papua new guinea png, a resource rich state in the south pacific, displays signs of suffering from the nr curse. Such deposits are assets, part of a countrys natural capital. The traditional explanation for the resource curse is the dutch disease or deindustrialization. A 2011 study in the journal comparative political studies found that natural resource wealth can be either a curse or a blessing and that the distinction is conditioned by domestic and international factors, both amenable to change through public policy, namely, human capital formation and economic openness.

Many oil, gas and mineralrich countries have failed to reach their full potential as a result of their natural resource wealth. The dutch disease syndrome is only partly taken into account. The putative mechanism is that as revenues increase in the growing sector. In the late 20th century, sachs and warner extensively documented the negative correlation between a countrys resource endowment and their rate of economic growth. Moreover, resource abundance may involve a displacement of a growthessential manufacturing sector, leading to dutch disease.

Aug 30, 2006 but oil alone cannot explain norways growth, since sachs and warner 2001 show that resource gifts often reverse growth, making oil a curse, not a blessing. Political explanations widen the economic perspective by suggesting that government policy and institutional structures play a central role in creating the resource curse di john 2009. Rich resource countries and economic growth top rated. It is worth exploring what at prima facie seems to be contrary evidence to the thesis that the resource curse is a consequence of political. Four countries that beat the resource curse global risk. Many resourcerich countries seem to suffer from it. In many countries, natural resources have been detrimental to the economic development. Learn vocabulary, terms, and more with flashcards, games, and other study tools. We also test whether this natural resource curse can be explained by market mechanisms dutch disease or institutional quality mechanisms. For more of this read owen barders paper on scalingup aid and menachem katzs book on managing the oil curse in africa. Results from this analysis show that improved government effectiveness and an increase in the corruption perception index i.

Also called the resource curse or the curse of oil, the phrase dutch disease was first coined in 1977 by the economist magazine to describe the decline of the manufacturing. The dutch disease refers to a decline in a countrys nonresource tradedgoods sector caused by resourcedriven appreciation of real exchange rates. In economics, the dutch disease is the apparent causal relationship between the increase in the economic development of a specific sector for example natural resources and a decline in other sectors like the manufacturing sector or agriculture. The resource curse occurs as a country begins to focus all of its production means on a single industry.

In particular, they attempt to explain why state decisionmakers in natural resourcerich economies create and maintain growthrestricting policies. Despite the active economic changes of the 2000s, resource abundance has negatively affected the quality of the countrys current economic growth. Brunnschweiler and bulte, 2008a,b to explain the possible impediment to economic growth due to a resource curse. Our guarantees our quality standards our fair use policy. The views expressed in this working paper are those of the authors and do not necessarily represent those of the imf or imf policy. The countrys economic situation worsened after the reserves discovery, in a paradox that became known as the dutch disease problem, or the resource curse. Escaping the natural resource curse and the dutch disease.

Aug 18, 2004 we can now cure dutch disease joseph stiglitz. The term was coined by the economist in 1977, but what does it mean. A commonly cited example of the resource curse is the dutch disease, a situation that occurred in the netherlands following a large natural gas. Jul 03, 2019 dutch disease is an economics term that refers to the negative consequences arising from large increases in the value of a countrys currency. Png displays some evidence of dutch disease in the decline of local manufacturing in the past decade alongside exchange rate appreciation. Dutch disease whilst the natural resource curse is now used to describe a wide range of issues, dutch disease remains a more specific and technical, economic concept. This is a phrase used to refer to the challenges and adversities that netherlands went through when it discovered north sea gas. An economy has a resourcecurse or dutchdisease problem when it has a strong comparative. That is, revenue from natural resources hurts traditional manufacturing through an increase in the exchange rate. Economists have long discussed the negative effect of dutch disease episodes on the nonresource tradable sector as a whole, but little has been said on its impact on the composition of the nonresource export sector.

The african continent is endowed with rich natural resources, including minerals and fossil fuels. Jun, 2014 one of the leading explanations to be presented in relation to the resource curse theory is that of the dutch disease theory established by matsuyama 1992, which argues that when an organisation or country specialises in a particular type of resource production, the combination of the specialisation as well as the appreciation of the. May 19, 2017 the resource curse is sometimes lumped with dutch disease, named for a 1960s crisis in the netherlands after it discovered natural gas in the north sea. The models describing dutch disease problems assume an economy with three sectors. The resource curse, also known as the paradox of plenty, refers to the paradox that countries with an abundance of natural resources such as fossil fuels and certain minerals, tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources. Causes dutch disease not a problem unless we make other assumptions after the boom labor and other resources have problems moving to other sectors manufacturing has externalities eg, learning economies that are lost can transfer market volatility from minerals to other sector, as canada, australia, and chile illustrate. Research points to a new explanation of dutch disease. This indicates that there is a natural resource curse effect, especially in economies rich in primary resources and mineral resources, but no such effect in oilrich states.

The dutch disease approach highlights the role of exchange rates, international and noninternational trade, and competitiveness of different sectors di john 2009. Section ii illustrates the relationship between resource richness, growth, and governance, with particular attention to botswana. Many resource rich countries seem to suffer from it. The resource curse and the dutch disease flashcards quizlet. Moreover, there is the possibility of contracting the dutch disease, which involves a rapid and substantial contraction of. The first interpretation of rc is built upon the empirically observed negative correlation between economic growth and. The classic economic model describing dutch disease was developed by the economists w. Profits and quantities of income generated are extremely volatile 2.

Using this data we estimate the impact of dutch disease on nonresource export concentration. Section iii describes the empirical model and the data and econometric issues. Terms in this set god gave us maize and the devil gave us oil. The latecomers of lao pdr and myanmar who suffer from resource curse in terms of the dutch disease could turn out to enjoy resource blessing with the improvement of their institutional qualities. Rich resource countries and economic growth best essay. Bridge 2008 usefully divided the resource curse literature into four strands of argument. Low linkages with the rest of the economy 5 the staple trap trajectory 6 political dimensions to the resource curse 6 inappropriate economic management 6. Botswana, dutch disease, resource curse, diamonds production, african economies, economic development, economic growth. The resource curse, or resource trap, is a paradoxical situation in which countries with an abundance of nonrenewable natural resources experience stagnant economic growth or even economic contraction. There are many theories and much academic debate about the reasons for, and exceptions to, these adverse outcomes. Mar 19, 2015 this paper explores whether papua new guinea png, a resourcerich state in the south pacific, displays signs of suffering from the nr curse. Tilton abstract countries that possess rich mineral deposits, it is widely assumed, are fortunate. Norways catching up with and forging ahead of its neighbors growth studies show, counter to intuition, that the discovery of a natural resource may be a curse rather than a blessing since resourcerich countries grow slower than others. In the 1960s, norway lagged behind its scandinavian neighbors in the aggregate value of economic production per capita, as it had.

Dutch disease measure for resource rich and other countries, 19752005 year. Coal mining and the resource curse in the eastern united states. The literature on dutch disease is extensive when it comes to documenting the negative impacts of natural resource exports on non resource tradable goods as an aggregate e. A large increase in natural resource revenues can hurt other sectors of the economy, particularly exportbased manufacturing, by causing inflation or exchange rate appreciation and shifting labor and capital from the non resource sector to the resource sector see revenue management reader. In particular, they attempt to explain why state decisionmakers in natural resourcerich economies create and maintain growth. Ghanas chances of avoiding the resource curse should also be viewed within the broader context of the countrys record in managing other natural resources, particularly gold which has always played an important historical role from the ashanti kingdom and arab traders to british colonization. May 27, 2011 some argue that png has a classic case of the resource curse. Mining is the key that converts dormant mineral wealth into schools, homes, ports, and other. This paper fills this gap by exploring to what extent concentration of a countrys nonresource export basket is determined. Whilst the natural resource curse is now used to describe a wide range of issues, dutch disease remains a more specific and technical. In the model, there is a nontradable sector which includes services and two tradable sectors. A large increase in natural resource revenues can hurt other. The economist explains what dutch disease is, and why its bad. The term is also now used to refer to the the effects of other inflows such as a rise from remittances to.

It is primarily associated with a natural resource. Challenges dutch disease and the resource curse from the outset, norwegian economists were concerned about the challenges that the petroleum resources presented for the norwegian society. A large increase in natural resource revenues can hurt other sectors of the economy, particularly exportbased manufacturing, by causing inflation or exchange rate appreciation and shifting labor and capital from the nonresource sector to the resource sector see revenue management reader. Analysis of the dutch disease effect on the selected. For the purely tradetheory aspect of the resource curse, my own understanding is as follows. Start studying the resource curse and the dutch disease. Dutch disease makes tradable goods less competitive in world markets. Why natural resources are a curse on developing countries and. In particular, we test the impacts of the share of natural resources in. Dutch disease, called the resource curse or the curse of oil, is the damaging effect on an economy as a result of the exploitation and export of natural resources. Feb 20, 2015 the explanation for why some countries with natural resources see their economies weaken and jobs disappear. Economists have long discussed the negative effect of dutch disease episodes on the non resource tradable sector as a whole, but little has been said on its impact on the composition of the non resource export sector. A large increase in natural resource revenues can hurt other sectors of the economy, particularly exportbased manufacturing, by causing.

Production and exports in africas resourcerich economies are. Growth studies show, counter to intuition, that the discovery of a natural resource may be a curse rather than a blessing since resourcerich countries grow slower than others. Dutch disease the socalled dutch disease is a particular form of the resource curse that emerged during the netherlands experience with a large oil discovery in the 1960s. What are the forces behind the resource curse in most. The explanation for why some countries with natural resources see their economies weaken and jobs disappear. T here is a curious phenomenon that economists call the resource curse so named because, on average. The resource curse, or the paradox of poverty from plenty. The dutch disease and strands of the resource curse. Large export revenues from oil, say, cause the real exchange rate to appreciate. A key question is how to break with this past experience and chart a new development path.

The literature on dutch disease is extensive when it comes to documenting the negative impacts of natural resource exports on nonresource tradable goods as an aggregate e. The concept of dutch disease was later expanded to include other extractive natural resources, such as oil, gas, agriculture, minerals, and fuel sachs and warner, 1995, 2001. The nigerian complaint research points to a new explanation of dutch disease resource riches stunt the banking sector as well as pushing up exchange rates. Why natural resources are a curse on developing countries and how to fix it. Apr 30, 2012 why natural resources are a curse on developing countries and how to fix it. The term resource curse encompasses the significant social, economic and political challenges that are unique to countries rich in oil, gas and minerals. Dutch disease, weak accountability and corruption, which all conspire to undermine economic, social and political development. Dutch disease is an economics term that refers to the negative consequences arising from large increases in the value of a countrys currency. The result was stronger dutch currency, poor performance of other sectors and industries, and volatility of commodity prices.

Moreover, there is the possibility of contracting the dutch disease, which involves a rapid and substantial contraction of the traded goods sector. The economist explains what dutch disease is, and why its. Countries experiencing the curse can expect an appreciation of real exchange rates that negatively affects other economic sectors especially manufacturing exports in the case of the dutch disease, greater volatility as revenues become increasingly linked to swings in global markets, marked increases in corruption and mismanagement and. Worldwide governance indicators in 2015 indonesia malaysia lao pdr myanmar. A paradoxical situation in which countries with an abundance of nonrenewable resources experience stagnant growth or even economic contraction. Why natural resources are a curse on developing countries. The term resource curse encompasses the significant social, economic and. A great deal is already known about how to manage these, both in the context of scalingup aid inflows and managing resources booms. Papua new guinea and the natural resource curse springerlink. Norway, the resource curse, and the dutch disease 607 wealth and economic growth. Moreover, countries that are rich in resources may suffer from the dutch disease, an economic illness that involves factor movement, excess demand, and loss of positive externalities. The resource curse, or resource trap, is a paradoxical situation in which countries with an abundance of nonrenewable natural resources experience.

The dutch disease and resource curse thesis writing. Another possible channel for the resource curse is the dutch disease, described in sachs and warner 1995, 1997, and 2001. Vikram mashru why have resource rich economies so frequently failed to achieve sustained economic growth. Ghanas oil discovery immediately raised fears that the country would come to suffer from the natural resource curse nrc 3 a popular academic term whose manifestations have been investigated in many other oilabundant countries such as angola, equatorial guinea, sudan, nigeria, and, more recently, chad. My view is that dutch disease and absorptive capacity arent the main problem. The resource curse is sometimes lumped with dutch disease, named for a 1960s crisis in the netherlands after it discovered natural gas in the north sea. Is the uk suffering from dutch disease news for the oil. The economist explains what dutch disease is, and why it. But oil alone cannot explain norways growth, since sachs and warner 2001 show that resource gifts often reverse growth, making oil a curse, not a blessing. Variants of the resource curse argument 1 the dutch disease model. When a rich country is faced with an influx of wealth from oil or any other natural resource, the value of its currency rises. This paper fills this gap by exploring to what extent concentration of a countrys nonresource.