New Economist: More on the 'resource curse': "

Can economies escape the resource curse? This was the subject of a recent post, which attracted quite a few commments. Now another paper has tackled the issue. Rick van der Ploeg, professor of economics at the European University Institute, explores the issue in a new CEPR discussion paper Challenges and Opportunities for Resource Rich Economies (alternative PDF version available here).

The political economy of resource rich countries is surveyed. The empirical evidence suggests that countries with a large share of primary exports in GNP have bad growth records and high inequality, especially if the quality of institutions and the rule of law are bad. The economic argument that a resource bonanza induces appreciation of the real exchange rate and a decline of non-resource export sectors may have some relevance. More important, a resource boom reinforces rent grabbing, especially if institutions are bad, and keeps in place bad policies.

Optimal resource management may make use of the Hotelling rule and the Hartwick rule. However, a recent World Bank study suggests that resource rich economies squander their natural resource wealth and more often have negative genuine saving rates. Still, countries such as Botswana, Canada, Australia and Norway suggest it is possible to escape the resource curse. Some practical suggestions for a better management of natural resources are offered.

"