The "Resource Curse"


  • “The resource curse, also known as the paradox of plenty, refers to the paradox that countries with an abundance of natural resources (like fossil fuels and certain minerals), tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources.” - Wikipedia

  • The term “resource curse” was initially developed to explain the observed negative correlation between abundant resources and economic growth from 1970 - 1989. However since 1989, there appears to be no such negative correlation. Similarly there is no correlation with inflation or income inequality.

  • However the strong negative correlation between abundant resources and democracy has persisted. Natural resources appear to be more easily controlled by autocrats and their cronies than other forms of national wealth.

GDP Growth, Inflation, Income Inequality And The “Resource Curse”

The term arose from a 1993 book written by British economist Richard Auty which documented slower growth in countries with abundant resources. Figure 1 from the 2001 article by Sachs and Warner in the European Economic Review illustrates what seemed to be a strong negative correlation.

Figure 1: Negative Correlation Between GDP Growth & Natural Resources From Sachs & Warner 2001


Other studies claimed similar negative correlations between natural resources and inflation and income equality.

However, as shown in Figure 2, that negative correlation has disappeared. Although not shown (but reproducible in R code referenced below), there is also no statistically significant recent correlation between natural resources and inflation or income equality.

Figure 2: No Between GDP Growth & Natural Resources 2012-2016

In fact in some African countries like Nigeria, Angola and Botswana there is a suggestion that stronger GDP growth is appearing in countries with more natural resources. However that growth is actually not coming from natural resources directly, but from non-resource sectors like manufacturing and services that benefitted from reinvesting natural resource wealth.

Democracy And The “Resource Curse”

Sadly, however, there continues to be a persistent negative relationship between natural resources and democracy. Figure 3 shows the correlation between natural resources and the Varieties Of Democracy Liberal Democracy score.[1] Nevertheless it is also clear there is more going on here than natural resources, as repressive Cuba and democratic Canada have similar percentages of natural resources relative to GDP.

Figure 3: Liberal Democracy vs. Natural Resources

More telling than the Liberal Democracy score is the form of government per the REIGN database summarized by natural resource quintile in Table 1 (quintile 1 is the lowest percent of natural resources relative to GDP).[2]

Table 1: 2012-2016 % Natural Resources of GDP Quintile Vs. 2016 Government Form Per REIGN Database

The data shows a monotonic decrease in the percentage of democratic governments by increasing natural resource quintile. Both “personal” (autocratic) and “other” (monarchies) become more likely as natural resources increase.
There are several theories why this relationship might exist. One is that abundant resource wealth means a government does not need to tax its citizens. While this may seem like a positive, it could also mean government depends less on the approval of its citizens. The bargain between citizen and government is weaker.

A second theory is that because natural resources are a concentrated source of wealth, they are more easily co-opted by corrupt leaders who use that wealth to enrich themselves and the cronies on whom they depend. Apt analogies would include bears and bee hives, or bank robbers and banks. Often autocrats also use natural resource revenue to buy military goods to repress dissent and consequently they are more difficult to overthrow. Other countries may also be less likely to help overthrow an autocrat lest they be accused of intervening only to secure access to the afflicted country's natural resources.

In this same vein (although not classically covered under the category of “natural resources”), the production of illicit drugs like cocaine also appears to be easily co-opted by autocrats. Unfortunately data on the economic value of illicit drug production is not available. If it were, it would certainly increase the percentage of GDP from “natural resources” for countries like Afghanistan, Colombia, Myanmar, and Venezuela.

Venezuela appears to be a prime example of the co-opting hypothesis. Hugo Chavez came to power by promising to more widely distribute oil revenues. However now autocrat Nicolas Maduro uses much of the revenue from oil and the illicit drug trade to buy arms from China and Russia to repress Venezuelan protest. So much money has been looted from Venezuela’s national oil company (at least $11 billion dollars) that its oil production has declined sharply.

The disappearance of the negative correlation between natural resources and GDP growth after 1989 should be a cautionary tale about extrapolating current empirical relationships. It also gives one hope that the negative relationship between natural resources and democracy will someday vanish as citizens rebel against plutocracies.

[1] See the Varieties of Democracy website for the data and the codebook defining their liberal democracy score. Coppedge, Michael, John Gerring, Staffan I. Lindberg, Svend-Erik Skaaning, Jan Teorell, David Altman, Michael Bernhard, M. Steven Fish, Adam Glynn, Allen Hicken, Carl Henrik Knutsen, Joshua Krusell, Anna Lührmann, Kyle L. Marquardt, Kelly McMann, Valeriya Mechkova, Moa Olin, Pamela Paxton, Daniel Pemstein, Josefine Pernes, Constanza Sanhueza Petrarca, Johannes von Römer, Laura Saxer, Brigitte Seim, Rachel Sigman, Jeffrey Staton, Natalia Stepanova, and Steven Wilson. 2017. “V- Dem [Country-Year/Country-Date] Dataset v7.” Varieties of Democracy (V-Dem) Project. & Pemstein, Daniel, Kyle L. Marquardt, Eitan Tzelgov, Yi-ting Wang, Joshua Krusell and Farhad Miri. 2017. “The V-Dem Measurement Model: Latent Variable Analysis for Cross-National and Cross-Temporal Expert-Coded Data”. University of Gothenburg, Varieties of Democracy Institute: Working Paper No. 21, 2nd edition.
[2] Bell, Curtis. 2016. The Rulers, Elections, and Irregular Governance Dataset (REIGN). Broomfield, CO: OEF Research. Available at The data includes some information prior to 1950, but in many cases regime information is missing. Thus I restricted my analysis to data post-1949.

Transparent and reproducible: All Figures except Figure 1 can be generated by using the free, publicly-available R program and the R code (with free data links) available in “resourceCurse.r" on github.


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