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The Natural Resource Curse: A Survey

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  • Frankel, Jeffrey

    (Harvard University)

Abstract

It is striking how often countries with oil or other natural resource wealth have failed to grow more rapidly than those without. This is the phenomenon known as the Natural Resource Curse. The principle is not confined to individual anecdotes or case studies, but has been borne out in econometric tests of the determinants of economic performance across a comprehensive sample of countries. The paper considers six aspects of commodity wealth, each of interest in its own right, but each also a channel that some have suggested could lead to sub-standard economic performance. They are: long-term trends in world commodity prices, volatility, crowding out of manufacturing, civil war, poor institutions, and the Dutch Disease. The paper concludes with a consideration of promising ideas for institutions that could help a country that is rich in, say, oil overcome the pitfalls of the Curse and achieve good economic performance. They include indexation of oil contracts, hedging of export proceeds, denomination of debt in terms of oil, Chile-style fiscal rules, a monetary target that emphasizes product prices, transparent commodity funds, and lump-sum distribution.

Suggested Citation

  • Frankel, Jeffrey, 2010. "The Natural Resource Curse: A Survey," Working Paper Series rwp10-005, Harvard University, John F. Kennedy School of Government.
  • Handle: RePEc:ecl:harjfk:rwp10-005
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    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O - Economic Development, Innovation, Technological Change, and Growth
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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