Resource impact: curse or blessing? A literature survey

Common sense and economic theory suggest large revenues from natural resource projects should generate economic progress and development. Yet much evidence argues the opposite and that resource-rich countries suffer from 'resource curse'. This paper provides a survey of the academic literature on the impact of natural resources on an economy. The topic has long attracted interest in the economics literature but more recently, interest has revived. The paper first considers the large body of empirical work examining the relationship between resource abundance, poor economic performance and poverty. While this evidence supports the view of a negative impact, it is not without criticism and some assert a few countries managed instead to receive a 'blessing'. The paper assesses how the literature explains the transmission mechanisms between resource revenues and economic damage. Six areas are discussed: a long-term decline in terms of trade; revenue volatility; Dutch disease; crowding out effects; increasing the role of the state; and the socio-cultural and political impacts. Finally, various options from the literature to avoid negative impacts are analysed: not developing the mineral deposits; diversifying the economy away from dependence on oil, gas and mineral exports; sterilising the incoming revenue; the use of stabilisation and oil funds; and reconsidering investment policies. The paper finishes by assessing what political reforms might be needed to carry out the necessary policies to avoid negative impacts.