Linking the Resource Curse Theory with Development: Lessons for Resource-Based Economies

Abstract

The article notes that the resource curse has widespread effects, even though there is no consensus of the theories. It reveals that the consumption linkages do lead to high demand for foreign goods which in turn leads to a reduction in the demand for local goods and discourages investments. The production linkages are unlikely to be fully developed by the mineral extractive industries due to lack of investments in the sector and that fiscal linkages (where extraction of oil and mineral resources enable the local economy to benefit through mineral rents), are not embodied in the governance system.  The mining sector in general has an effect on national economies through employment creation and raw material inputs.  The article contends that when mineral rent is put in non-productive and public ventures, this does not bring immediate benefits to society. The article also notes that there is a strong correlation between resource abundance and economic prosperity. This however needs investments in projects that have both strong forward and backward linkages.

 It concludes that governments' poor economic policies, the inability to diversify the economy and the inability to select viable and productive investment ventures due to bureaucratic tendencies are some of the reasons for slow growth in resource abundant economies. The paper concludes by acknowledging the link between the existence of resource abundancy and conflicts, thus emphasizing the effects of the resource curse.