What's Behind the Resource Curse?

Why do resource rich countries experience slower growth?:

Resource Abundance and Corporate Transparency, by Art Durnev and Sergei Guriev, Vox EU: High oil prices brought the issue of so-called “resource curse” back to the frontlines of public debate. It has long been noticed that resource abundance does not always help countries grow out of poverty; instead, they often fall victim of poor governance and internal conflicts. Moreover, among the developing countries which did close the gap with the rich countries in the recent decades, the majority have been resource-poor.

It is still not clear what exactly prevents resource-rich countries from making use of their resource endowments. The newly emerging consensus among economists is that resource abundance slows down, or may even revert, development of growth-enhancing institutions. This conjecture is no longer just an academic hypothesis. Recently, it has been widely discussed by policymakers and the media. In particular, the New York Times’ columnist Tom Friedman’s formulated it as the First Law of Petropolitics: high oil prices stifle the development of democracy and political and economic freedom in oil-rich countries. ...

Our work ... supports the emerging consensus that slower growth in resource-rich economies may be explained by the negative impact of resource endowments on the development of economic and political institutions, which in turn suppresses economic growth. We show that it is not an abstract theory; nor should the existing cross-country comparisons be disregarded as a coincidence or a spurious correlation. It turns out that resource curse is indeed a corporeal phenomenon. It affects – in a very tangible way – corporate transparency in actual corporations. This in turn results in material consequences for capital allocation and growth of these firms. ... [...continue reading...]