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A New Direction for Poor, Resource-Rich Countries

An oil drill in Australia. Australia is among the developed countries that have renegotiated better deals with natural-resource companies. (Photo: monkeyc.net)

Kampala – New discoveries of natural resources in several African countries – including Ghana, Uganda, Tanzania, and Mozambique – raise an important question: Will these windfalls be a blessing that brings prosperity and hope, or a political and economic curse, as has been the case in so many countries?

On average, resource-rich countries have done even more poorly than countries without resources. They have grown more slowly, and with greater inequality – just the opposite of what one would expect. After all, taxing natural resources at high rates will not cause them to disappear, which means that countries whose major source of revenue is natural resources can use them to finance education, health care, development, and redistribution.

A large literature in economics and political science has developed to explain this “resource curse,”and civil-society groups (such as Revenue Watch and the Extractive Industries Transparency Initiative) have been established to try to counter it. Three of the curse’s economic ingredients are well known:

  • Resource-rich countries tend to have strong currencies, which impede other exports;
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  • Because resource extraction often entails little job creation, unemployment rises;
  • Volatile resource prices cause growth to be unstable, aided by international banks that rush in when commodity prices are high and rush out in the downturns (reflecting the time-honored principle that bankers lend only to those who do not need their money).

Read more at Project Syndicate

Copyright: Project Syndicate, 2012.

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