Editing Resource curse (section)

== Economic effects ==
The [[International Monetary Fund]] classifies 51 countries as "resource-rich," which are defined as countries that derive at least 20% of exports or 20% of fiscal revenue from nonrenewable natural resources; 29 of those countries are low- and lower-middle-income. Common characteristics of the 29 countries include (i) extreme dependence on resource wealth for fiscal revenues, export sales, or both; (ii) low saving rates; (iii) poor growth performance; and (iv) highly volatile resource revenues.<ref name="Venables 2016"/>

There is no consensus view on the effect of natural resource abundance on economic development.<ref name=":13">{{Cite book |last=Zhan |first=Jing Vivian |title=China's Contained Resource Curse: How Minerals Shape State-Capital-Labor Relations |date=2022 |publisher=[[Cambridge University Press]] |isbn=978-1-009-04898-9 |location=Cambridge, United Kingdom}}</ref>{{Rp|page=9}} Publishing in 2022, academic Jing Vivian Zhan observes that different studies, all with supporting empirical evidence, show contradictory findings on this point, as well as whether the effects vary across different historical time periods.<ref name=":13" />{{Rp|page=9}} Whether studies look at short-term or long-term economic effects of resource abundance may also result in different conclusions.<ref name=":13" />{{Rp|page=9}}

A 2016 meta-study found weak support for the thesis that resource richness adversely affects long-term economic growth.<ref name=":1">{{Cite journal|last1=Havranek|first1=Tomas|last2=Horvath|first2=Roman|last3=Zeynalov|first3=Ayaz|title=Natural Resources and Economic Growth: A Meta-Analysis|journal=World Development|doi=10.1016/j.worlddev.2016.07.016|volume=88|pages=134–151|year=2016|url=https://www.econstor.eu/bitstream/10419/125528/1/838169112.pdf|hdl=10419/125528|s2cid=53600732 }}</ref> The authors noted that "approximately 40% of empirical papers finding a negative effect, 40% finding no effect, and 20% finding a positive effect" but "overall support for the resource curse hypothesis is weak when potential [[publication bias]] and [[Study heterogeneity|method heterogeneity]] are taken into account."<ref name=":1" /> 

A 2021 meta-analysis of 46 natural experiments found that price increases in oil and lootable minerals increased the likelihood of conflict.<ref>{{Cite journal|last1=Blair|first1=Graeme|last2=Christensen|first2=Darin|last3=Rudkin|first3=Aaron|date=2021|title=Do Commodity Price Shocks Cause Armed Conflict? A Meta-Analysis of Natural Experiments|url=https://www.cambridge.org/core/journals/american-political-science-review/article/abs/do-commodity-price-shocks-cause-armed-conflict-a-metaanalysis-of-natural-experiments/469E8F1CBA02E4E5D525E3355DC401D9|journal=American Political Science Review|language=en|volume=115|issue=2|pages=709–716|doi=10.1017/S0003055420000957|s2cid=232422450|issn=0003-0554|via=}}</ref>  A 2011 study in the journal ''[[Comparative Political Studies]]'' found that "natural resource wealth can be either a "curse" or a "blessing" and that the distinction is conditioned by domestic and international factors, both amenable to change through public policy, namely, [[human capital]] formation and economic openness."<ref>{{Cite journal|last1=Kurtz|first1=Marcus J.|last2=Brooks|first2=Sarah M.|date=2011-03-15|title=Conditioning the "Resource Curse": Globalization, Human Capital, and Growth in Oil-Rich Nations|journal=Comparative Political Studies|volume=44|issue=6|pages=747–770|doi=10.1177/0010414011401215|s2cid=153449998|url=https://www.researchgate.net/publication/254084350}}</ref>

=== Dutch disease ===
{{main|Dutch disease}}
[[Dutch disease]], defined as the relationship between the increase in the economic development of a specific sector (for example [[natural resources]]) and a decline in other sectors, first became apparent after the Dutch discovered a huge natural gas field in [[Groningen gas field|Groningen]] in 1959. [[The Netherlands]] sought to tap this resource in an attempt to export the gas for profit. However, when the gas began to flow out of the country, its ability to compete against other countries' exports declined. With the Netherlands focusing primarily on the new gas exports, the Dutch currency began to appreciate, which harmed the country's ability to export other products. With the growing gas market and the shrinking export economy, the Netherlands began to experience a [[recession]]. 

This process has been witnessed in multiple countries around the world including but not limited to [[Venezuela]] ([[History of the Venezuelan oil industry#Dutch Disease|oil]]), [[Angola]] ([[Mining industry of Angola#Diamonds|diamonds]], [[Sonangol Group|oil]]), the [[Democratic Republic of the Congo]] ([[Mining industry of the Democratic Republic of the Congo|diamonds]]), and various other nations. All of these countries are considered "resource-cursed".<ref>{{cite book|last=O'Neil|first=Patrick|title=Essentials of Comparative Politics|url=https://archive.org/details/isbn_9780393976540|url-access=registration|year=2004|publisher=Norton|location=New York, London|page=[https://archive.org/details/isbn_9780393976540/page/147 147]|isbn=9780393976540}}</ref>

Dutch disease makes tradable goods less [[Competitive#Economics|competitive]] in world markets. Absent [[currency manipulation]] or a [[currency peg]], appreciation of the currency can damage other sectors, leading to a compensating unfavorable [[balance of trade]]. As imports become cheaper in all sectors, internal employment suffers and with it the skill infrastructure and manufacturing capabilities of the nation. To compensate for the loss of local employment opportunities, government resources are used to artificially create employment. The increasing national revenue will often also result in higher government spending on health, welfare, military, and public infrastructure, and can cause burdens on the economy if done corruptly or inefficiently. While the decrease in the sectors exposed to international competition leaves the economy vulnerable to price changes in the natural resource and consequently even greater dependence on natural resource revenue, this can be managed by active and effective use of hedge instruments such as [[Forward contract|forwards]], [[Futures contract|futures]], [[Option (finance)|options]], and [[Swap (finance)|swaps]]; however, if it is managed inefficiently or corruptly, this can lead to disastrous results. Also, since [[Productivity (economics)|productivity]] generally increases faster in the manufacturing sector than in the government, the economy will have lower productivity gains than before.

According to a 2020 study, giant resource discoveries led to a substantial appreciation of the real exchange rate.<ref>{{Cite journal|last1=Harding|first1=Torfinn|last2=Stefanski|first2=Radoslaw|last3=Toews|first3=Gerhard|title=Boom Goes the Price: Giant Resource Discoveries and Real Exchange Rate Appreciation|journal=The Economic Journal|year=2020|volume=130|issue=630|pages=1715–1728|language=en|doi=10.1093/ej/ueaa016|doi-access=free}}</ref>

=== Revenue volatility ===
{{more citations needed section|date=January 2016}}
Prices for some natural resources are subject to wide fluctuation; for example, [[price of petroleum|crude oil prices]] rose from around $3 per [[barrel (unit)|barrel]] to $12/bbl in 1974 following the [[1973 oil crisis]] and fell from $27/bbl to below $10/bbl during the [[1980s oil glut|1986 glut]]. In the decade from 1998 to 2008, it rose from $10/bbl to $145/bbl, before [[World oil market chronology from 2003|falling by more than half]] to $60/bbl over a few months. When government revenues are dominated by inflows from natural resources (for example, 99.3% of [[Angola]]'s exports came from just oil and diamonds in 2005),<ref>{{cite web |url=http://www.imf.org/external/pubs/ft/scr/2007/cr07355.pdf |title=Angola: Selected Issues and Statistical Appendix |publisher=International Monetary Fund |date=October 2007 |access-date=2012-07-26}}</ref> the [[volatility (finance)|volatility]] can disrupt government planning and [[government debt|debt service]]. Abrupt changes in economic realities that result from this often provoke widespread breaking of contracts or curtailment of social programs, eroding the rule of law and popular support. Responsible use of financial hedges can mitigate that risk to some extent.{{citation needed|date=January 2019}}

Susceptibility to that volatility can be increased when governments choose to borrow heavily in foreign currency. Real exchange rate increases, through capital inflows or the "Dutch disease" can make it appear an attractive option by lowering the cost of interest payments on the foreign debt, and they may be considered more creditworthy because of the existence of natural resources. If the resource prices fall, however, the governments' capacity to meet debt repayments will be reduced. For example, many oil-rich countries like [[Nigeria]] and [[Venezuela]] saw rapid expansions of their debt burdens during the 1970s oil boom; however, when oil prices fell in the 1980s, bankers stopped lending to them and many of them fell into arrears, triggering penalty interest charges that made their debts grow even more.{{citation needed|date=January 2019}} As Venezuelan oil minister and OPEC co-founder [[Juan Pablo Pérez Alfonzo]] presciently warned in 1976: "Ten years from now, twenty years from now, you will see, oil will bring us ruin... It is the devil's excrement."<ref>{{cite magazine |title='The Devil's Excrement' |last=Useem |first=Jerry |magazine=Fortune |date=3 February 2003 |url=https://money.cnn.com/magazines/fortune/fortune_archive/2003/02/03/336434/index.htm }}</ref>

A 2011 study in ''[[The Review of Economics and Statistics]]'' found that commodities have historically always shown greater price volatility than manufactured goods and that globalization has reduced this volatility.<ref name=":9">{{Cite journal|last1=Jacks|first1=David S.|last2=O'Rourke|first2=Kevin H.|last3=Williamson|first3=Jeffrey G.|date=2011-07-21|title=Commodity Price Volatility and World Market Integration since 1700|journal=Review of Economics and Statistics|volume=93|issue=3|pages=800–813|doi=10.1162/rest_a_00091|s2cid=57559662|url=http://www.nber.org/papers/w14748.pdf}}</ref> Commodities are a key reason why poor countries are more volatile than rich countries.<ref name=":9" />

=== Enclave effects <span class="anchor" id="Resource enclave"></span> ===
"Oil production generally takes place in an economic enclave, meaning it has few direct effects on the rest of the economy." Michael Ross describes how there are limited economic linkages with other industries in the economy. Consequently, [[economic diversification]] may be delayed or neglected by the authorities in light of the high profits that can be obtained from limited natural resources. The attempts at diversification that do occur are often [[white elephant]] [[public works]] projects which may be misguided or mismanaged. However, even when the authorities attempt diversification in the economy, this is made difficult because resource extraction is vastly more lucrative and out-competes other industries for the best human capital and capital investment. Successful natural-resource-exporting countries often become increasingly dependent on extractive industries over time, further increasing the levels of investment in said industry as it is necessary to maintain their states' finances. There is a lack of investment in other sectors of the economy which is further exacerbated by declines in the commodity's price. While resource sectors tend to produce large financial revenues, they often add few jobs to the economy, and tend to operate as [[enclave]]s with few forward and backward connections to the rest of the economy.<ref>Ross, M.L. (2012) The Oil Curse: How Petroleum Wealth Shapes the Development of Nations, Princeton University Press, Oxford</ref>

=== Human capital ===
Another possible effect of the resource curse is the crowding out of [[human capital]]; countries that rely on natural resource exports may tend to neglect education because they see no immediate need for it. Resource-poor economies like [[Singapore]], [[Taiwan]] or [[South Korea]], by contrast, spent enormous efforts on education, and this contributed in part to their economic success (see [[East Asian Tigers]]). Other researchers, however, dispute this conclusion; they argue that natural resources generate easily taxable rents that can result in increased spending on education.<ref>{{cite journal|last=Stijns|first =Jean-Philippe |date=2006 |title=Natural resource abundance and human capital accumulation |doi=10.1016/j.worlddev.2005.11.005 |volume=34 |issue=6 |journal=World Development |pages=1060–1083 |citeseerx=10.1.1.197.1418 }}</ref> However, the evidence for whether this increased spending translates to better education outcomes is mixed. A study on [[Brazil]] found that oil revenues were associated with sizable increases in education spending, but only with small improvements in education provision.<ref>{{cite journal|last1=Caselli|first1 =Francesco|last2=Michaels|first2=Guy|date=2013 |title=Do Oil Windfalls Improve Living Standards? Evidence from Brazil|doi=10.1257/app.5.1.208 |volume=5|pages=208–238|journal=American Economic Journal: Applied Economics|s2cid =1137888|url =http://cep.lse.ac.uk/pubs/download/dp0960.pdf}}</ref> Similarly, an analysis of early-20th century [[Texas oil boom|oil booms]] in [[Texas]] and neighboring states found no effect of oil discoveries on student teacher ratios or school attendance. However, oil-rich regions participated more intensively in the [[Rosenwald School|Rosenwald schoolbuilding program]].<ref>{{cite journal|last=Maurer|first =Stephan |date=2019 |title=Oil discoveries and education provision in the Postbellum South |doi=10.1016/j.econedurev.2019.101925 |volume=73 |journal=Economics of Education Review|page =101925 |s2cid =204420629 }}</ref> A 2021 study found that European regions with a history of coal mining had 10% smaller per-capita GDP than comparable regions. The authors attribute this to lower investments in human capital.<ref>{{Cite journal|last1=Esposito|first1=Elena|last2=Abramson|first2=Scott F.|date=2021-03-04|title=The European coal curse|journal=Journal of Economic Growth|volume=26|issue=1 |pages=77–112|language=en|doi=10.1007/s10887-021-09187-w|issn=1573-7020|doi-access=free|bibcode=2021JEcGr..26...77E }}</ref>

Resource extraction driven economies can be argued to potentially have negative effects on human capital through several different means. "Addictive economies" is a term that was coined by William Freudenburg to describe how resource extraction driven economies can lead to short term economic benefits and sometimes short-sightedness by policymakers. Freudenberg also did research in an effort to understand more of the human capital implications of these types of economies and why results vary so widely across regions and industries. Although there is plentiful research of these types of economies, an understanding of the socioeconomic effects are still murky. Researchers Robert Purdue and Gregory Pavela did research on the [[West Virginia]] coal mining economy to further investigate these concerns. Their research includes data from all of West Virginia's 55 counties over the 13-year period from 1997 to 2009. In this research, significant ecological costs can be noted in the area which, in turn, effect the people negatively. The research also poses the fact that West Virginia ranked last on the Gallup-Healthways Well-Being Index in the years of 2009-2010 in the categories of "physical health", "emotional health", "life evaluation", and "overall well-being". Arguments against the "resource curse" often claim economic benefits from the resource. The Purdue and Pavela case study reflects an example of negative economic impacts of this type of reliance on resource extraction; as even when the price of surface level coal goes up on the market, the poverty levels of people within those communities rises alongside it.<ref>Perdue, R. and G. Pavela. 2012.  Addictive Economies and Coal Dependency: Methods of Extraction and

                 Socioeconomic Outcomes in West Virginia 1997-2009. ''Organization and Environment.''

                 25(4): 368-384.</ref>

Adverse effects of natural resources on human capital formation might come through several channels. High wages in the resource extraction industry could induce young workers to drop out of school earlier in order to find employment. Evidence for this has been found for coal<ref>{{Cite journal|last1=Black|first1=Dan|author2-link=Terra McKinnish|last2=McKinnish|first2=Terra|last3=Sanders|first3=Seth|date=2021-06-07|title=Tight Labor Markets and the Demand for Education: Evidence from the Coal Boom and Bust |journal=Industrial and Labor Relations Review|volume=59|pages=3–16|language=en|doi=10.1177/001979390505900101|hdl=10161/2535|s2cid=15175248|hdl-access=free}}</ref> and [[fracking]] booms.<ref>{{Cite journal|last1=Cascio|first1=Elizabeth|last2=Narayan|first2=Ayushi|date=2021-06-07|title=Who Needs a Fracking Education? The Educational Response to Low-Skill-Biased Technological Change|journal=Industrial and Labor Relations Review|volume=75|pages=56–89|language=en|doi=10.1177/0019793920947422|s2cid=225246974|url=http://www.nber.org/papers/w21359.pdf }}</ref> In addition, resource booms can lower the wages of teachers relative to other workers, increasing turnover and impairing students' learning.<ref>{{Cite journal|last1=Marchand|first1=Joseph|last2=Weber|first2=Jeremy |date=2021-06-07|title=How Local Economic Conditions Affect School Finances, Teacher Quality, and Student Achievement: Evidence from the Texas Shale Boom|journal=Journal of Policy Analysis and Management|volume=39|pages=36–63|language=en|doi=10.1177/0019793920947422|s2cid=225246974|url=http://www.nber.org/papers/w21359.pdf }}</ref>

=== Incomes and employment ===
A study on coal mining in [[Appalachia]] suggests that "the presence of coal in the Appalachian region has played a significant part in its slow pace of economic development. Our best estimates indicate that an increase of 0.5 units in the ratio of coal revenues to personal income in a county is associated with a 0.7 percentage point decrease in income growth rates. No doubt, coal mining provides opportunities for relatively high-wage employment in the region, but its effect on prosperity appears to be negative in the longer run."<ref>{{Cite journal | doi=10.1111/jors.12310 | title=Coal Mining and the Resource Curse in the Eastern United States| journal=Journal of Regional Science| volume=57| issue=4| pages=568–590| year=2017| last1=Douglas| first1=Stratford| last2=Walker| first2=Anne| bibcode=2017JRegS..57..568D|url=http://be.wvu.edu/phd_economics/pdf/14-01.pdf|ssrn=2385560| s2cid=157987462| archive-url=https://web.archive.org/web/20160603173931/http://be.wvu.edu/phd_economics/pdf/14-01.pdf| archive-date=2016-06-03}}</ref>

Another example was the [[Spanish Empire]] which obtained enormous wealth from its resource-rich colonies in South America in the sixteenth century. The large cash inflows from silver reduced incentives for industrial development in Spain. Innovation and investment in education were therefore neglected, so that the prerequisites for successful future development were given up. Thus, Spain soon lost its economic strength in comparison to other Western countries.<ref>{{cite book|last=Baten|first= Jörg |title=A History of the Global Economy. From 1500 to the Present|date=2016|publisher=Cambridge University Press|page=159|isbn=9781107507180}}</ref>

A study of US oil booms found positive effects on local employment and income during booms but found that after the boom, incomes "per capita" decreased, while "unemployment compensation payments increased relative to what they would have been if the boom had not occurred."<ref>{{Cite journal|title = The Economic Aftermath of Resource Booms: Evidence from Boomtowns in the American West|journal = The Economic Journal|volume = 126|issue = 593|date = 2014-10-01|issn = 1468-0297|pages = 1092–1128|doi = 10.1111/ecoj.12173|first1 = Grant D.|last1 = Jacobsen|first2 = Dominic P.|last2 = Parker|s2cid = 14300122}}</ref>

=== Tradeable sectors ===
A 2019 study found that active mining activity had an adverse impact on the growth of firms in tradeable sectors but a positive impact on the growth of firms in non-tradeable sectors.<ref>{{Cite journal|last1=De Haas|first1=Ralph|last2=Poelhekke|first2=Steven|date=2019-01-19|title=Mining matters: Natural resource extraction and firm-level constraints|journal=Journal of International Economics|volume=117|pages=109–124|doi=10.1016/j.jinteco.2019.01.006|issn=0022-1996|hdl=1871.1/d02ab5b2-d0e5-4b5c-9bc0-aa5b7be1b35d|s2cid=53997444|url=https://research.vu.nl/en/publications/d02ab5b2-d0e5-4b5c-9bc0-aa5b7be1b35d |hdl-access=free}}</ref>