Synopsis on Curse of Natural Resources

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Information about Synopsis on Curse of Natural Resources

Published on February 28, 2014

Author: AgriGouravvani



This is a synopsis for the seminar on Curse of Natural Resources. Here Synopsis means a brief summary of the presentation to let the reader gain in brief what is topic

DEPARTMENT OF AGRICULTURAL ECONOMICS, UNIVERSITY OF AGRICULTUAL SCIENCES, GKVK, BENGALURU. Name: Gourav Kumar Vani Major Advisor: Shri P.S. Srikantha Murthy (In-charge major advisor Dr. M.G. Chandrakanth) ID No.: PALB 2103 Seminar Teachers: Dr. G.S. Mahadevaiah Class: Sr. M.Sc. Shri Honnaiah th Semester: 4 Date: 01-03-2014 Seminar: 2nd Time: 10:30 A.M. Seminar on Curse of Natural Resource One of the surprising features of economic life is that resource poor economies often vastly outperform resource rich economies in economic growth. This puzzle is called Resource Curse. According to Wikipedia, Resource Curse is “Paradox that countries and regions with an abundance of natural resources, specifically point-source non renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources”. This hypothesis of resource curse was described for the first time by Richard M. Auty in 1990 and in coined this term in 1993. Resource Curse was for the first time observed in Netherland where discovery of natural gas and its subsequent export led to appreciation of currency and deindustrialization. This phenomena was given a term “Dutch Disease” by the “The Economist” magazine in 1977. Subsequently Sachs and Warner conducted studies on causes of slow growth in African countries using several control variables in 1997 and 2001. The study concluded that even after controlling for the effect of several variables relationship among the abundance of natural resource and growth of per capita income is negative. Here abundance means export of natural resource based primary export to GDP. Resource cursed countries have many problems in common as symptom. These symptoms are low human development of country’ population (186 for Congo), low value addition by manufacturing sector to GDP (5percent for Congo), high level of inflation (47.9 percent for Congo), high level of corruption (Congo ranked 22), high level of rent seeking (35.2 percent of GDP), low level of sustainability( Congo has negative saving rates), high level of unemployment(53 percent for Congo), very low status of peace, high level of poverty (95.2 percent for Congo), low level of governance (Congo ranked 176th in world) and poor quality of institutions. Also most of the resource cursed countries are having autocratic regimes. It is also true for these countries that inappropriate capital on hand accompanied by huge spending on luxuries by bureaucrats/autocrats is common feature for such countries. Such countries lack the necessary technology of the day and also lacks in innovation. There is long list of resource cured countries with some of the more highlighted one being Democratic Republic of Congo, Nigeria, Algeria, Syria, Venezuela and Sudan. There are also countries which managed to escape the curse though having abundance of natural resources with more successful among those being Botswana, Norway and Chile. Though resource curse hypothesis was proved by Sachs and Warner but there are also arguments counter to this hypothesis. One among these is that most of the countries has weak institutional setup when the resource in the question was discovered. Most of these countries were also colonized and exploited by their colonizers. This fact is ignored by the research works done so far. Resource curse can be avoided by investing in human resources, basic/essential infrastructure only when economies save money out of the oil and mineral wealth they get. Such countries should also refrain from high spending on unnecessary public projects and

should maintain tight watch on inflows and outflows of funds to avoid problem of appreciation or depreciation of currency. These countries should also increase transparency in system by calling upon foreign banks to manage the sovereign wealth funds of these states. References: 1. SACHS J.D. and WARNER A.M., Nov. 1997,Natural Resource Abudance and Economic Growth, Cengtre for International Development and Harward Institutue for International Development, Harward University. 2. SACHS J.D. and WARNER A.M.,2001, The Curse of Natural Resources. European Economic Review , 45:827-838. 3.

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