Resources and economic development

There are several ways in which abundance in natural resources can impede economic development. The fist is usually the Dutch disease – the effect of the high exports of natural resources on the currency exchange rate appreciation. Due to this, other sectors of the economy lose competitiveness, since exporting to foreign markets is more expensive, while importing is cheaper. But this is not all: prices of natural resources, especially of oil and gas, are significantly more volatile than those of manufacturing: in times of global boom these prices surge, while in recessions they plummet. When countries are too much relying on these revenues, this can lead to serious problems, which are clearly attested in Venezuela these days. However, public revenues from natural resources can be used in a positive way: alleviating poverty, investing in education, health and public infrastructure, which can increase living conditions and diversify the economy and lead to development.

Resources and democracy

But more often than not, these public revenues are not used in a productive way. Instead, they are used to enrich those in power and solidify their grasp over the country. High public revenues from these sources mean that there is little need for taxation, and that there is a lot of free money to be distributed around – with this, people do not feel the need to articulate their political demands since they do not feel the economic burden of the regime, while the poor masses support due to the social programs they benefit from. These are often distributed in a way that is conditional: if you support the regime, you will receive the benefits, no matter if you qualify for them or not, but if you are against the regime, you might forget about the benefits entirely.

Also, these revenues enable high expenditures on the security apparatus (military, police and secret service) which support the regime, and often violate human rights of political opponents. Political instability and civil wars also follow natural resources. When cheap money is around, everyone wants a piece of the action, and military coups and dictatorships, general civil strife, separatist movements etc. are often present in countries rich with natural resources. Diamonds are bloody, and not just metaphorically.

This kind of social environment is not suitable for democratic institutions. The government controls (directly – through state ownership, or indirectly - through government contracts and licenses) the most significant segment of the economy, which means that economic interests are intertwined with political interests. Regimes changes and violent revolutions are possible, but when they happen, one autocratic regime is supplanted mostly with another similar one.

Are there any exceptions?

Every rule has exceptions. In this regard, we can point out to Norway, as a country with high rents from natural resources, but that is highly developed, liberal democracy, with a free press, low corruption and all other characteristics of a prosperous society. What made Norway escape its resource curse, was it something inherent to the country? It seems it was just a lucky set of circumstances, connecting to the timing of when Norway found its natural riches. While other countries hit by the resource curse first found their treasures in the form of oil, natural gas, coal, gold, diamonds or other resources, and then started to develop institutions, Norway was lucky to find its riches after it already developed a set of institutions that enabled the rule of law in the country. Norwegian rents from natural resources were minuscule (below 2% of GDP) and started rising only after that – reaching 7.2% of GDP in 1980 and even 12.3% in 2008. Due to this fact, natural resources in Norway were not embezzled and used to fund a plutocratic regime or a military dictatorship, but a stable liberal democracy. It seems that Norway is not so exceptional after all.


Although the most numerous examples are found in Sub-Saharan Africa (Angola, Sierra Leone, Congo DR, Congo R, Equatorial Guinea) and the Middle East (Algeria, Iraq, Kuwait, Libya) there are also examples from the wider European region, such as Azerbaijan, Russia, Kazakstan, Turkmenistan and Uzbekistan. As long as these countries retain economies that are focusing on natural resources extraction, we cannot be too optimistic about their economic development and democratic future.