Policy-Making in Resource-Rich Countries

Economic development depends upon resource availability, resource allocation, and the efficiency of resource use. One would presume that countries with an abundance of natural resources would stand a better chance of developing than resource-poor countries. Recent experiences in less developed countries show, however, that countries with an abundance of natural resources have grown at a slower pace than countries with scarce natural resources. Zambia is a case in point. Its economy has been based on copper mining, but over the last three decades per capita incomes in Zambia have been halved. This paper shows how policy-making in such a resource abundant economy is biased by the availability of resource rents. It further discusses the implications for the policies of international financial institutions and other donors in such a setting, and the possibilities for the domestic process to sustain a system of good governance.