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The Natural Resource Curse: A Survey

  • Jeffrey A. Frankel

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 has been borne out in some econometric tests of the determinants of economic performance across a comprehensive sample of countries. This 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. Skeptics have questioned the Natural Resource Curse, pointing to examples of commodity-exporting countries that have done well and arguing that resource endowments and booms are not exogenous. The paper concludes with a consideration of institutions and policies that some commodity-producers have tried, in efforts to overcome the pitfalls of the Curse. Ideas 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15836.

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Date of creation: Mar 2010
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Publication status: published as “ T he Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions , ” in Commodity Price Volatility and Inclusive Growth in Low - Income Countries , edited by Rabah Arezki , Catherine Pattillo, Marc Quintyn and Min Zhu (International Monetary Fund) , 2012 . CID W P 233; HKS RWP 12 - 014.
Handle: RePEc:nbr:nberwo:15836
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