Disentangling the Natural Resources Curse: National and Regional Socioeconomic Impacts of Resource Windfalls

Why are some economies likely to grow more slowly when facing natural resource windfalls? What are the causes and consequences of the so-called natural resource curse? These are commonly asked questions in the economics literature, where different studies have address them using different empirical methods, samples and case studies. In a detailed survey, van der Ploeg (2011) reviews 10 different hypotheses commonly used to explain the resource curse at national level. In this article we complement van der Ploeg’s survey by categorizing the 10 resource curse hypotheses into market and political factors in order to better understand the potential consequences of resource windfalls in regions or countries. We then focus on conceptualizing the resource curse at regional level, which in contrast to cross-country evaluations, has received much less attention from academics. Abstracting from environmental and land tenure issues, we develop our conceptual framework by analysing the causality trees that emerge from the two main direct economic shocks produced by resource booms in local areas: labor demand shock and income generation. These causality trees schematize the potential socioeconomic impacts that originate from these effects in a sequence of three hierarchical levels of consequences: First, migration and crowding-out of local firms’ labor, characterized mainly by the inflow of temporary and new resident workers (who also bring new income to local towns) and the movement of labor from local manufacturing and agriculture to the mining sector. Second, the migration patterns and new levels of income will increase the demand for local goods such as housing, services and others, increasing their price in the community. Third, higher demand (and prices) for local goods will produce new jobs in sectors such as construction and services, in contrast to the decline in employment likely to happen in crowded-out local manufacturing. Additional discussion is provided for the indirect socioeconomic outcomes likely to emerge from different points across these three levels of consequences. We also expand on the different factors likely to affect the RC occurrence and magnitude of effects across space. We finish by discussing some policy implications