Natural Resource Curse Thesis

Local ruling elites and foreign capitalists share the resources wealth, leaving the majority impoverished and their countries underdeveloped.Chapters 10 and 11 examine Papua New Guinea's legal regime to demonstrate this point.According to the resource curse thesis (RCT) of the 1990s, a strand of development discourse informed by neoliberal development economics, natural resource-rich developing countries are cursed by their natural resources abundance, particularly minerals and petroleum.

The thesis concludes that the solution to the resource curse or underdevelopment is for natural resources-rich developing countries to reform their laws to allow majority ownership and control in their citizens and adopt policies that the now developed countries adopted and followed when they were at similar stage of development.

These policies are the 'autarkic' policies rejected by the resource curse theorists but recommended by the political economists of the underdevelopment discourse.

There are numerous hypotheses to account for this correlation, as I note in my book, .

Most obviously, easy resource revenues eliminate a critical link of accountability between government and citizens, by reducing incentives to tax other productive activity and use the revenue to deliver social services effectively.

The resource curse is a paradoxical situation in which countries with an abundance of non-renewable natural resources experience stagnant economic growth or even economic contraction.

The resource curse occurs as a country begins to focus all of its production means on a single industry, such as mining, and neglects investment in other major sectors.One of the external factors is the legal regime imposed through colonialism.Colonial laws have effectively divested indigenous peoples of their ownership and property rights in natural resources, which the neo-colonial nation-states retained upon independence, which are then transferred to transnational corporations in exchange for licence fees and non-controlling equity.The correlation between energy dependence and authoritarianism is clear."There are twenty-three countries in the world that derive at least 60 percent of their exports from oil and gas and not a single one is a real democracy," observes Larry Diamond of Stanford University.As a result, the nation becomes overly dependent on the price of commodities, and overall gross domestic product becomes extremely volatile.Additionally, government corruption often results when proper resource rights and an income distribution framework are not established in the society, resulting in unfair regulation of the industry.Fortunately, as my colleague Terra Lawson-Remer points out in a new CFR memo, all is not lost.There are concrete steps the international community can take to help break this curse First, a few facts.The new industry becomes a source of economic growth and relative economic prosperity, as jobs and disposable income that were previously absent become available.The curse comes from the fact that this new industry that is bringing economic prosperity begins to negatively impact other parts of the economy by diverting available means of production and investment only to the new industry itself.