What Have We Learned about the Resource Curse?

Introduction

From 2001 to 2013, many studies addressed the question of whether natural resource wealth leads to political dysfunction.
There's considerable evidence that petroleum tends to produce a "political resource curse" under certain conditions.
The resource curse is defined as the adverse effects of a country’s natural resource wealth on its economic, social, or political well-being.
The term was first used in print by Richard Auty in 1993.
The idea of a resource curse has influenced debates in political science, such as:
- Causes of democratic transitions.
- Role of taxation in state-building.
- Consequences of foreign aid.
- Factors affecting civil war.
A large economics literature examines how natural resource wealth affects economic growth.
This review examines the political effects of resource endowments, particularly on:
- Government accountability.
- Quality of state institutions.
- Incidence of civil war.
Three questions are addressed:
- What are the most robust findings on these issues?
- What are the major challenges to these findings, and how valid are they?
- What are the most important gaps in our knowledge?
There is strong evidence that petroleum has three important effects:
- Makes authoritarian regimes more durable.
- Leads to heightened corruption.
- Helps trigger violent conflict in low- and middle-income countries, particularly when located in the territory of marginalized ethnic groups.
The effects on authoritarianism and conflict appear to be recent, emerging after the 1970s.
Three main debates about these effects:
- Conditions under which oil has these effects (scholars agree effects are conditional, but there is no consensus over what those conditions are).
- Mechanisms that generate these conditional effects.
- Whether the resource curse is real or illusory.
Almost all research on the resource curse is based on observational data, which makes it hard to settle disputes.
It is also hard to adjudicate claims about phenomena that are poorly measured or infrequently observed.

What are Natural Resources and How are they Measured?

Over the past two decades, scholars have defined "natural resources" in dozens of ways.
There are three components to most definitions of “natural resources”:
- The type of resource.
- The salient quality of the resource.
- The method used to normalize these values.
Sachs & Warner (1995) and Collier & Hoeffler (1998) looked at broad measures of resources that included petroleum, other minerals, and agricultural commodities.
Today, agricultural products are rarely seen as part of the resource curse because:
- They are produced, not extracted.
- They are seldom correlated with unfavorable outcomes.
Relatively few studies have looked closely at the effects of nonfuel minerals, forest products and commodities more generally.
Only petroleum has been consistently correlated with less democracy and worse institutions.
A wider range of resources 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.
Common choices for salient quality of the resource include:
- Quantity of production, value of production, rents generated by production, and 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.
The final component is the method used to normalize these values, such 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.
These three components can be combined in dozens of ways to generate alternative measures of a country’s natural resource endowment.
There is no single “best” measure; different indicators focus on different kinds of resources and different properties of these resources, and hence can be used to evaluate different theories.
Some measures are endogenous to the outcomes they purportedly explain.
One common measure—oil export dependence, meaning petroleum exports as a fraction of GDP—is probably biased upward in poorer and more conflict-prone countries because they are typically too impoverished to consume the fuel they produce, causing them to export more than they otherwise would.
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.
To circumvent these problems, scholars have turned to alternative measures, such as:
- The value of oil production per capita, global price shocks, and the discovery of large oil fields as instruments or direct measures of resource wealth.
Others have used data on oil reserves, oil depletion, or the number of drilling rigs in place, although these data are both poorly measured and often endogenous to the outcomes of interest.
Resource curse skeptics suggest that any measures that are influenced by local decisions about resource extraction might be endogenous to the outcomes we care about.
Empirical studies consistently show that bad political conditions lead to less oil exploration and production, not more.
Bohn & Deacon (2000) demonstrate that countries with undemocratic institutions and endemic conflict tend to be poor investment risks for extractive firms; hence these countries tend to have both less exploration and slower extraction rates, a finding consistently echoed by later studies.
The 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.
Thanks to these larger investments, recorded mineral assets are about 12 times greater per capita in the high-income democracies than in the low-income countries.
Hence oil discoveries, reserves, and production tend to be biased downward in countries with less democracy and more conflict.
If there were no resource curse, we should observe less oil wealth, not more oil wealth, in politically troubled countries.

Resource Wealth and Democracy

Many books and articles have analyzed the relationship between resource wealth, especially petroleum wealth, and government accountability.
Most are broadly consistent with the claim that higher levels of oil wealth make autocratic governments more stable, and hence less likely to transition to democracy.
The pattern suggests that the greater a country’s oil income, the less likely it has been to transit to democracy.
Countries that became democratic early and remained democratic had little or no oil.
The connection between petroleum wealth and autocratic rule has long been described by scholars of resource-rich countries, particularly in the Middle East.
The core finding that more oil wealth is associated with less democracy has been replicated many times, using better data and increasingly sophisticated methods; recent studies report it is robust to the use of country fixed effects and instrumental variables.
An extreme bounds analysis identified oil dependence as one of the few robust correlates of regime types.
A statistical meta-analysis of the oil–democracy question concluded that oil had a negative, nontrivial, and robust effect on democracy.
Much of this research has tried to clarify the conditions under which petroleum wealth has these antidemocratic effects.
Two broad possibilities:
- Oil could strengthen authoritarian governments and prevent them from transiting to democracy.
- It could weaken democratic governments and push them toward authoritarianism.
Most studies of this issue find support for the first condition, but results are mixed on the second condition.
The first condition is also consistent with research on the survival in office of authoritarian leaders, rather than authoritarian regimes.
Several studies also conclude that oil makes autocracies more autocratic, by reducing media freedom and forestalling the emergence of an authoritarian legislature.
According to Wright et al. (2015), increases in oil wealth help autocratic regimes ward off other autocratic challengers.
The impact of oil wealth on democracies is more ambiguous.
One set of studies reports that oil has prodemocratic effects in democracies, either by making the governments more stable or by improving their democracy scores.
Hence Smith (2004) argues that oil might be better characterized as “pro-regime stability” than “anti-democratic” as it helps both autocracies and democracies survive.
But a second group of studies finds no evidence that oil helps stabilize democratic regimes or rulers.
And a smaller, third group suggests that the effect of oil on democratic stability is conditional: It may stabilize democracies that are wealthy and have strong institutions but foster the breakdown of accountability in democracies that are poorer or have weaker institutions.
All these studies find that oil windfalls tend to lengthen the terms in office of elected local officials.
Two of these studies also suggest that the heightened incumbency advantage is accompanied by a drop in the quality of candidates.
All seven subnational studies suggest that windfalls in democratic or semidemocratic settings have proincumbent effects.
Researchers have also tried to identify further conditions among autocracies that either temper or exacerbate the effects of oil.
Several studies argue that much depends on a ruler’s ability to capture the available resource rents.
From 1960 to 1979, oil states and nonoil states were equally likely to transition to democracy; after 1979, nonoil states were almost three times more likely to make democratic transitions.
Dunning (2008) argues that oil impedes democratization in countries with low levels of inequality but hastens democratization in countries with high inequality levels by alleviating the concern of wealthy elites that democracy will lead to the expropriation of their private assets.
According to Smith (2007), the key intervening variable is the timing of the oil boom. If it occurs before an authoritarian regime has developed a strong ruling party or coalition, it is unlikely to create stability; if it arrives after the creation of a strong ruling party or coalition, it becomes more likely to foster authoritarian stability.
Many studies seek to identify the mechanisms that link more oil to less democracy. Perhaps the most common argument is for the “rentier effect”:
- An abundant flow of oil revenues enables incumbents to both reduce taxes and increase patronage and public goods, making it possible for them to buy off a larger set of potential challengers and reduce dissent.
An important assumption is that tax revenues and nontax revenues have different effects on authoritarian stability.
When undemocratic governments impose heavier taxes (or reduce subsidies), 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.
The rentier model assumes that resource wealth does not affect the preferences of rulers, only their fiscal capacity to act on these preferences.
An alternative set of approaches suggests that resources affect the value that leaders place on remaining in office, rather than their capabilities.
According to these models, the availability of resource rents makes incumbency more valuable, inducing a ruler to invest more in regime-preserving activities.
Many additional theories connect oil to either autocracy or incumbency.
There have been three types of challenges to the claim that oil prolongs autocracies.
- The first comes from studies that test an alternative version of the resource curse:
There is no reason to assume that levels and changes have identical effects.
Several recent studies use statistical approaches that focus on changes in oil wealth. All report that these changes are uncorrelated with subsequent changes in democratic accountability.

Resources and Institutions

The second branch of the resource curse literature looks at the relationship between resource wealth and the quality of institutions, meaning the effectiveness of the government bureaucracy, the incidence of corruption, the rule of law, and more broadly, the state’s capacity to promote economic development.
Once again, petroleum is often associated with harmful outcomes, whereas other mineral resources typically are not.
Most of this research falls in one of two categories.
- The first looks at the ways that institutional quality may condition the effects of resource wealth on economic growth.
- The second body of research asks whether natural resource wealth can damage, or stunt the beneficial evolution of, institutions themselves.
There are many theories about how resource wealth could hurt institutional quality.
Scholars have made special efforts to scrutinize the association between natural resources and corruption.
Several studies, using either cross-national or panel regressions, find strong correlations between natural resource dependence and perceptions of corruption.
The impact of resource wealth on institutions may also be conditional.
Government ownership might also be important.
Claims about oil wealth and institutions have faced the same two questions as the rest of the resource curse literature:
- Whether the observed correlations are truly causal; and whether the direct, harmful effects of resource wealth are offset by indirect, beneficial ones.

Resources and Civil War

The third major branch of research looks at the effects of natural resource wealth on civil war.
There are three important differences, however, between this and the other two branches:
- Other kinds of natural resources seem to matter.
- The effects of resource wealth on civil war appear to be nonmonotonic.
- The location of the resource matters.
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.
The importance of location has also made it easier to distinguish among competing explanations for the resource–conflict correlation.
There is also a third set of theories, which focus on the interactions between governments and rebels.

Looking Ahead

There is considerable evidence to support three broad claims about the conditional effects of natural resource wealth:
- That higher levels of petroleum income lead to more durable authoritarian rulers and regimes.
- That more petroleum income increases the likelihood of certain types of government corruption.
- That moderately high levels of petroleum wealth, and possibly other types of resource wealth, tend to trigger or sustain conflict when they are found in regions dominated by marginalized ethnic groups, particularly in low- and middle-income countries.
There are at least three unsolved puzzles about the resource curse.
- The first is the scope of the resource effect.
- A second puzzle concerns mechanisms and conditions.
- The final puzzle is what should be done.