He argues that this is because leaders in resource-rich countries are less sensitive to being punished in elections if they take actions that adversely affect foreign investors. The attempts at diversification that do occur are often white elephant [public works] projects which may be misguided or mismanaged. Cuts in the European Defence Fund’s budget: at what cost. IDS Policy Briefing, "The Hidden Shame of the Global Industrial Economy", "The Petroleum And Poverty Paradox - Assessing U.S. And International Community Efforts To Fight The Resource Curse", "Oil-to-Cash: Fighting the Resource Curse through Cash Transfers : Center for Global Development : Initiatives: Active", "Resource Wealth and Women's Economic and Political Power in the U.S. States", "An aid-institutions paradox? ", A 2011 study in The Review of Economics and Statistics found that commodities have historically always shown greater price volatility than manufactured goods and that globalization has reduced this volatility. Following in the footsteps of Nigeria, Angola and the Democratic Republic of Congo, Uganda is the latest nation to suffer the effects of the resource curse. , A study in the US similarly finds that resource wealth contributes to gender inequality: resource wealth leads to lower levels of female labor force participation, lower turnout and fewer seats held by women in legislatures.  Commodities are a key reason why poor countries are more volatile than rich countries. Most experts believe the resource curse is not universal or inevitable, but affects certain types of countries or regions under certain conditions. near the Equator), where biodiversity is higher, because of natural resources abundance. , A 2008 article by Thad Dunning argues that while resource revenues can promote or strengthen authoritarian regimes, in certain circumstances they can also promote democracy. From 2018 onward, a new discussion emerged concerning the potential for a resource curse related to critical materials for renewable energy. Absent currency manipulation or a currency peg, appreciation of the currency can damage other sectors, leading to a compensating unfavorable balance of trade.  Prior to the 1970s, oil-producing countries did not have democratization levels that differed from other countries.. When a rich country is faced with an influx of wealth from oil or any other natural resource, the value of its currency rises. All of these countries are considered "resource-cursed".. Too often, when a country strikes it rich as an energy supplier, the collective attention of both the government and the civil society can become devoted solely to maximizing profits from the energy industry. Le Billon, Philippe (2006), "Fuelling War: Natural Resources and Armed Conflicts", Learn how and when to remove this template message, is vastly more lucrative and out-competes, Template:Ross, M.L. According to a 2020 study, giant resource discoveries lead to a substantial appreciation of the real exchange rate. The authors claim that the chances of this happening is larger when assuming random effects, an assumption that does not allow for what the authors call "unobserved country-specific heterogeneity". All told, local populations can be left with little to show for their resources except a degraded environment. This could be due to scramble for the resources and poor distribution of resources. A 2019 article by Indra Overland argues that concerns about a new form of resource curse related to renewable energy are overblown, as renewable energy resources are more evenly distributed around the world than fossil fuel resources. , Even when politically stable, countries whose economies are dominated by resource extraction industries tend to be less democratic and more corrupt. His analysis has been referenced by a variety of media outlets including The Wall Street Journal, Roubini's EconoMonitor, OilPrice, and many more. Early Mafia activity is strongly linked[qualify evidence] to Sicilian municipalities abundant in sulphur, Sicily's most valuable export commodity. If the resource prices fall, however, the governments' capacity to meet debt repayments will be reduced. [Maphiwe Masiza]African countries like South Africa and Zimbabwe are key examples of the resource curse ideology, they both have natural resources in abundance but have not been able to use the resource abundance for the economical emancipation of their people.  One study finds the mere discovery (as opposed to just the exploitation) of petroleum resources increases the risk of conflict, as oil revenues have the potential to alter the balance of power between regimes and their opponents, rendering bargains in the present obsolete in the future.  However in 1711 The Spectator wrote "It is generally observed, that in countries of the greatest plenty there is the poorest living", so this was not a completely new observation. " The study argues that states which have onshore oil wealth tend to build up their military to protect the oil, whereas states do not do that for offshore oil wealth. Rethinking the Macroeconomics of Resource-Rich Countries. Thus, Spain soon lost its economic strength in comparison to other Western countries. However, even when the authorities attempt diversification in the economy, this is made difficult because resource extraction is vastly more lucrative and out-competes other industries for the best human capital and capital investment. Civil war: Resource curse can lead to civil war. © 2017.  However, democracies that are resource-rich are more likely than resource-poor democracies to adopt FOI laws. ", Dutch disease first became apparent after the Dutch discovered a huge natural gas field in Groningen in 1959. Real exchange rate increases, through capital inflows or the "Dutch disease" can make this appear an attractive option by lowering the cost of interest payments on the foreign debt, and they may be considered more creditworthy due to the existence of natural resources. " According to a 2017 review study, "while some studies support the link between resource scarcity/abundance and armed conflict, others find no or only weak links.
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