Notes on Resource Curse
Introduction to the Resource Curse
The resource curse refers to the adverse effects of a country's natural resource wealth on its economic, social, or political well-being.
The term was coined by economic geographer Richard Auty in 1993.
The resource curse has been used to explain various issues in resource-rich countries, particularly in Africa, the Middle East, Latin America, and the former Soviet Union.
Initiatives to address the resource curse have been launched by organizations like the World Bank, G20, and the United Nations Development Program.
Multistakeholder agreements like the Kimberley Process Certification Scheme and the Extractive Industries Transparency Initiative have been created.
The United States and the European Union have enacted transparency laws to alleviate the curse in resource-exporting countries.
Many debates in political science have been influenced by the idea of a resource curse, including those on democratic transitions, state-building, foreign aid, and civil war.
A significant body of literature in economics studies the effects of natural resource wealth on economic growth.
There is strong evidence that petroleum wealth tends to make authoritarian regimes more durable, increase corruption, and help trigger violent conflict in low- and middle-income countries.
These effects on authoritarianism and conflict seem to have emerged after the 1970s.
There are debates about the conditions under which oil has these effects, the mechanisms that generate these effects, and whether the resource curse is real or illusory.
Key Questions Addressed
What are the most robust findings on the political effects of resource endowments?
What are the major challenges to these findings, and how valid are they?
What are the most important gaps in our knowledge?
Debates Surrounding the Resource Curse
Conditions: Scholars agree the effects are conditional but disagree on what those conditions are due to collinearity in measurements.
Mechanisms: Debates exist over the mechanisms generating these conditional effects, though many studies on petroleum and civil conflict point to similar underlying processes.
Reality: A significant minority suggests the resource curse is a statistical artifact caused by endogeneity or omitted-variable bias.
A counter-argument suggests petroleum's damaging effects are counterbalanced by overlooked beneficial effects.
Research Constraints
Most research relies on observational data, making it difficult to settle disputes.
Claims about poorly measured phenomena (e.g., institutional quality) or infrequent events (e.g., civil wars) are hard to adjudicate.
Validity of Objections
The objection that the resource curse is due to endogenous or omitted variables is contradicted by extensive evidence.
The argument that harmful effects are offset by beneficial ones may sometimes be valid.
Shift in Emphasis
Early studies focused on the average treatment effect of natural resource wealth on a population of states.
More recent studies seek to explain why outcomes vary in the treated population.
Unresolved Issues
Scope of the resource effect
Conditions under which it occurs
Mechanisms that explain it
How it can best be remedied
Data Limitations
Lack of high-quality data, especially on the size and disposition of natural resource revenues.
Concealment or misreporting by governments.
Statistical analysis of large datasets with a single observation for each country and year has been mined extensively.
There is a promising trend toward subnational research with better data and more convincing identification strategies.
However, not all questions are amenable to subnational tests.
Measuring Natural Resources
Scholars have defined "natural resources" in various ways, which has both advantages and disadvantages.
It allows researchers to explore different dimensions of resource wealth, but also makes it easier to "shop" for measures that generate a given outcome.
Three Components to Most Definitions of Natural Resources
Type of resource:
Early studies looked at broad measures of resources, including petroleum, other minerals, and agricultural commodities.
Today, agricultural products are rarely seen as part of the resource curse.
Relatively few studies have looked closely at the effects of nonfuel minerals, forest products, and commodities more generally.
Petroleum is the key variable consistently correlated with less democracy and worse institutions.
A wider range of resources, including petroleum, gemstones, and other high-value minerals, have been linked to civil conflict.
Several studies have tried to explain why different resources seem to have different political consequences, but no explanation has been subject to careful testing.
Salient quality of the resource:
Common choices include the quantity of production, the value of production, the rents generated by production, and the value of exports.
A smaller number of studies have looked at the value of petroleum or mineral reserves, petroleum discoveries, the number of workers employed in the resource sector, the depletion of the resource, and the government revenues it generates.
Method used to normalize these values:
The analyst chooses whether to express the measured quantity as a fraction of GDP, a fraction of total exports, a fraction of total government revenues, by land area, or on a per capita basis.
Challenges in Measuring Resource Wealth
Some measures are endogenous to the outcomes they purportedly explain.
Oil export dependence, for example, is probably biased upward in poorer and more conflict-prone countries because they are typically too impoverished to consume the fuel they produce.
One of the most potentially important measures is also among the most difficult to obtain: government revenues from the extractive sector.
States collect these revenues in a variety of ways: through royalties, corporate taxes, concession fees, transit fees, signing bonuses, in-kind payments, and revenues from state-owned companies.
Governments can also hide their revenues in a variety of ways, such as by understating the value of the fuel they sell domestically.
Even second-best indicators, including the World Bank's nontax revenue measure, typically fail to capture much of this revenue.
Scholars have turned to alternative measures such as value of oil production per capita, global price shocks, and the discovery of large oil fields.
Endogeneity Concerns
Resource curse skeptics suggest that any measures influenced by local decisions about resource extraction might be endogenous to outcomes like authoritarian rule, state weakness, or violent conflict.
Empirical studies consistently show that bad political conditions lead to less oil exploration and production, not more.
Countries with undemocratic institutions and endemic conflict tend to be poor investment risks for extractive firms.
Rich democracies have about ten times more foreign investment in all types of mining, per square kilometer, than either the developing world or the countries of the former Soviet Union.
Oil discoveries, reserves, and production tend to be biased downward in countries with less democracy and more conflict.
Resource Wealth and Democracy
Most studies suggest that higher levels of oil wealth make autocratic governments more stable and less likely to transition to democracy.
Figure 1 illustrates the global relationship between oil wealth and democratic transitions between 1960 and 2008.
Countries with higher oil income are less likely to transit to democracy.
Early democracies had little or no oil, while countries with modest oil wealth had more recent and erratic transitions.
Countries with lots of oil and no democratic transitions are mostly in the Middle East and North Africa, but also include Russia, Angola, Gabon, Brunei, and Malaysia.
The finding that more oil wealth is associated with less democracy has been replicated many times and is robust to various statistical methods.
Government revenues from natural resources have a large, statistically robust effect on autocratic persistence.
Oil could strengthen authoritarian governments and prevent them from transitioning to democracy, or it could weaken democratic governments and push them toward authoritarianism.
Most studies support the first condition.
Oil and Authoritarian Survival
Oil wealth prolongs the survival in office of authoritarian rulers.
Oil makes autocracies more autocratic by reducing media freedom and forestalling the emergence of an authoritarian legislature.
Increases in oil wealth help autocratic regimes ward off other autocratic challengers.
Impact on Democracies
The impact of oil wealth on democracies is ambiguous.
Some studies report that oil has prodemocratic effects, either by making governments more stable or by improving their democracy scores.
Other studies find no evidence that oil helps stabilize democratic regimes or rulers.
A third group suggests that the effect of oil on democratic stability is conditional, stabilizing wealthy democracies with strong institutions but fostering breakdown in poorer democracies with weaker institutions.
Subnational studies in democracies and semidemocracies find that oil windfalls tend to lengthen the terms in office of elected local officials, accompanied by a drop in the quality of candidates.
Conditions Among Autocracies
Much depends on a ruler's ability to capture the available resource rents.
Oil only gained strong antidemocratic powers in the late 1970s after most oil-rich developing countries nationalized their petroleum industries.
Oil impedes democratization in countries with low levels of inequality, but hastens democratization in countries with high inequality levels.
The key intervening variable is the timing of the oil boom.
Mechanisms Linking Oil to Autocracy
Rentier Effect: Abundant oil revenues enable incumbents to reduce taxes and increase patronage and public goods, making it possible to buy off potential challengers and reduce dissent.
Tax revenues and nontax revenues have different effects on authoritarian stability.
When undemocratic governments impose heavier taxes, they are often met with demands for greater accountability; when they gain higher nontax revenues, they are able to reduce taxation and hence attenuate these demands.
Resource wealth does not affect the preferences of rulers, only their fiscal capacity to act on these preferences.
Availability of resource rents makes incumbency more valuable, inducing a ruler to invest more in regime-preserving activities.
Oil-rich autocrats may invest more heavily in repression or spend more on the military to keep it loyal.
Oil might help undemocratic leaders gain the foreign support they need to fend off challengers.
The fixed quality of mineral resources could make it harder for elites in authoritarian states to transfer their wealth abroad, which could lead them to more vigorously oppose democratic reforms.
Oil rents could spur immigration, which may enhance the government’s capacity to block democratic movements.
Challenges to the Oil-Autocracy Link
Focus on Changes vs. Levels:
Studies focusing on changes in oil wealth find they are uncorrelated with subsequent changes in democratic accountability.
Higher levels of oil wealth tend to hinder democracy, whereas short-term increases in these levels have no consistent effect.
Temporary revenue windfalls might make a dictator more popular in the short run but be insufficient to protect him from democratic forces when revenues fall.
Short-term revenue fluctuations would matter little, whereas levels of oil revenue would matter a lot.
Causal Identification:
The correlation between oil wealth and autocratic governance might be endogenous or driven by omitted variables.
Net Impact of Petroleum Wealth:
Even if oil has a negative direct effect on democratic transitions, this might be counterbalanced by a positive indirect effect brought about through the higher incomes that oil wealth tends to bring.
Resources and Institutions
Petroleum is often associated with harmful outcomes, whereas other mineral resources typically are not.
Institutional quality may condition the effects of resource wealth on economic growth.
Natural resource wealth can damage, or stunt the beneficial evolution of, institutions themselves.
Oil wealth or aggregated measures of resource wealth are inversely correlated with measures of institutional quality.
Impact on Institutional Quality
High levels of resource revenues could forestall a state's capacity to extract taxes from its citizens, leaving the government "weak," vulnerable to rent-seeking, and unable to develop sound economic policies.
Resource revenues could discourage politicians from investing in the state's bureaucratic capacity, encourage lower-quality candidates to compete for public office, and induce politicians to dismantle well-functioning institutions that govern the use of natural resources.
The volatility of these revenues could shorten a government's planning horizon and subvert major investments.
Resources and Corruption
Strong correlations exist between natural resource dependence and perceptions of corruption.
Subnational studies also find evidence of an oil-corruption link.
Government ownership might also be important.
Challenges: Causality and Net Effects
Whether observed correlations are truly causal.
Whether the direct, harmful effects of resource wealth are offset by indirect, beneficial ones.
Institutional quality is often poorly measured, and institutions could simultaneously affect and be affected by resource wealth.
Subnational studies offer compelling evidence that resource windfalls have led to heightened corruption, suggesting that, at least under some conditions, resource wealth can hurt government institutions.
Developing countries need strong and effective institutions to turn their natural resource wealth into broad-based, sustainable growth. Yet if these mediating institutions are themselves damaged by resource windfalls, escaping a resource curse becomes far more difficult.
Resources and Civil War
Petroleum and other mineral resources have been statistically associated with the onset or duration of civil war.
The effects of resource wealth on civil war appear to be nonmonotonic.
The relationship between natural resource wealth and the onset of violent conflict instead resembles an inverted U: As the value of resource wealth increases, the risk of conflict first rises, then falls.
The location of the resource matters.
When oil is found offshore, it has no robust effect on a country's conflict risk; when it is onshore, it appears to have a large effect.
Oil is more likely to spark conflict when it is found in regions that are poor relative to the national average and populated by marginalized ethnic groups.
When conflicts take place near regions with petroleum or alluvial diamond wealth, they also appear to last longer and become more severe.
The salience of location has made it easier for scholars to explore the relationship between resources and conflict on a subnational level and employ more satisfying identification strategies.
Competing Explanations for Resource-Conflict Correlation
Government-Focused Theories:
Natural resource wealth leads to violence by affecting the government—either making it administratively weaker and hence less able to prevent rebellions, or increasing the value of capturing the state and hence inducing new rebellions.
Insurgent-Focused Theories:
Natural resources lead to conflict by affecting insurgents, not governments: Rebels from an ethnically marginalized region could be motivated by the prospect of establishing an independent state, so that locally generated resource revenues would not be shared with the rest of the country; or rebels could finance the costs of rebellion by either looting the resource itself or extorting money from companies and workers who operate in their territory.
Government-Rebel Interaction Theories:
Resource rents increase the likelihood of conflict, conditional on the inability of the state to facilitate peaceful transactions between groups.
Resource-dependent governments cannot make credible commitments to redistribute resource wealth to local communities, because the volatility of resource prices causes the state’s strength to wax and wane, which makes it harder for them to reach peaceful agreements with insurgent groups, particularly when rebels can fund themselves by capturing contraband.
Conclusion: Oil leads to civil war, at least in part, through its effects on insurgent groups.
Unsolved Puzzles About the Resource Curse
Scope of the Resource Effect:
A country's natural resource base might also be affecting other dimensions of political and social life, such as the status of women, demographic trends, the spread of HIV/AIDS, international conflict and cooperation, and levels of government transparency.
There are many interesting questions about the consequences of a country’s resource base besides whether the regression coefficient on a “resource wealth” variable carries a negative sign, and the study of resource wealth should be equally broad-minded about what constitutes an interesting outcome.
Mechanisms and Conditions:
Many studies offer theories about the processes that link resources to different outcomes, or the conditions under which they are most likely to occur, yet few have tried to distinguish among these mechanisms and conditions to see which are valid.
One way to gain leverage over this question would be to investigate why different minerals appear to have different effects—or more narrowly, why petroleum appears to have certain effects, and the labour intensity of their extraction processes, which these comparisons could help researchers develop more general theories that explain why different types of resources, with different characteristics, lead to different outcomes.
Policy Interventions:
Many scholars have developed ideas about policy interventions, including greater transparency, stabilization and savings funds, community participation, cash payments to citizens, and alternative tax and royalty systems. We have little systematic knowledge, however, about which policies work and under what conditions.
There is virtually no comparable work on the impact of policies in the extractive sector, and the need for evidence-based policy advice could bring valuable progress.
Introduction to the Resource Curse
The resource curse refers to the adverse effects of a country's natural resource wealth on its economic, social, or political well-being.
The term was coined by economic geographer Richard Auty in 1993.
The resource curse has been used to explain various issues in resource-rich countries.
Initiatives to address the resource curse have been launched by organizations like the World Bank, G20, and the United Nations Development Program.
Key Questions Addressed
What are the most robust findings on the political effects of resource endowments?
What are the major challenges to these findings, and how valid are they?
What are the most important gaps in our knowledge?
Debates Surrounding the Resource Curse
Conditions: Scholars agree the effects are conditional but disagree on what those conditions are due to collinearity in measurements.
Mechanisms: Debates exist over the mechanisms generating these conditional effects, though many studies on petroleum and civil conflict point to similar underlying processes.
Reality: A significant minority suggests the resource curse is a statistical artifact caused by endogeneity or omitted-variable bias.
Measuring Natural Resources
Scholars have defined "natural resources" in various ways, which has both advantages and disadvantages.
Three Components to Most Definitions of Natural Resources
Type of resource: Petroleum is the key variable consistently correlated with less democracy and worse institutions.
Salient quality of the resource:Common choices include the quantity of production, the value of production, the rents generated by production, and the value of exports.
Method used to normalize these values:The analyst chooses whether to express the measured quantity as a fraction of GDP, a fraction of total exports, a fraction of total government revenues, by land area, or on a per capita basis.
Resource Wealth and Democracy
Most studies suggest that higher levels of oil wealth make autocratic governments more stable and less likely to transition to democracy.
The finding that more oil wealth is associated with less democracy has been replicated many times and is robust to various statistical methods.
Oil and Authoritarian Survival
Oil wealth prolongs the survival in office of authoritarian rulers.
Mechanisms Linking Oil to Autocracy
Rentier Effect: Abundant oil revenues enable incumbents to reduce taxes and increase patronage and public goods, making it possible to buy off potential challengers and reduce dissent.
Oil-rich autocrats may invest more heavily in repression or spend more on the military to keep it loyal.
Resources and Institutions
Petroleum is often associated with harmful outcomes, whereas other mineral resources typically are not.
Institutional quality may condition the effects of resource wealth on economic growth.
Resources and Civil War
Petroleum and other mineral resources have been statistically associated with the onset or duration of civil war.
Conclusion: Oil leads to civil war, at least in part, through its effects on insurgent groups.
Unsolved Puzzles About the Resource Curse
Scope of the Resource Effect: A country's natural resource base might also be affecting other dimensions of political and social life, such as the status of women