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Resource Curse Essay

587 words - 3 pages

This field paper will discuss the controversy on the existence of ‘resource curse’. Resource curse is an economic paradox which states that countries and regions having an abundant base of natural resources, especially non-renewable and point-sources are likely to have worse performance in economic development and economic growth. This term was first raised in the book ‘Sustaining Development in Mineral Economies: The Resource Curse Thesis’ (Auty, 1993). He describe in this book that country with rich natural resources, like Bolivia, Peru and others, failed to take advantage of this preponderance. Contrarily, they have lower economic growth and poorer disciplined development policies. In one word, they perform worse than less endowed countries. (Auty, 1993) It is still controversial in the academic world that if resource curse exits or not. This paper will summarize the literatures into three ...view middle of the document...

The autarkic development prematurely boost the rapid expansion of heavy and chemical industry, requiring primary sector to meet ‘the foreign exchange and revenue transfer needs of the economy’; while actually primary sector shrinks as per capital incomes rise and foreign exchange become constrained by tariff protection and policy transfers, proving that autarkic development is unsustainable. As a result, Economic growth becomes ‘erratic and slow’.
Sachs and Warner (1995) write about the evidence that support resource curse’s existence. Their research shows that economies in 71 countries with endowed natural resources exports to GDP in 1971 tended to have lower growth rates during the subsequent period 1971-1989, proving that economies with rich resources grow less rapidly than those with fewer natural resources. In their later working paper, Sachs and Warner (1997) improve their research and gain a similar result, changing the base year to 1970 and extending the subsequent period to 1990. Their research shows that there is actual negative correlation between natural resources and economic growth. Davis (2013) replicates Sachs and Warner’s research. He does a statistical replication of Sachs and Warner’s 1997 paper, with some improvement to the research method, gaining the same result.
Xu and Han (2005) explore the regional disparity between provinces in China and consider it as a result of resource curse. They use the percentage that basic reserves of coal, petroleum and natural gas in each province take up in national proportion to measure natural resource in each province and use it as the abundance index. 1978 is the base year and the subsequent period is 1978 to 2003. They generate a scatter diagram (figure 1) that has the abundance index as horizontal axis and the annual growth rate of GDP in each province as the vertical axis. The diagram show a clear pattern that the dots—representing every province—approximately converges to a left-to-right high-to-low fit line, showing that in this 25-year period, the economic growth in provinces with abundant natural resources are much slower than provinces with deficient natural resources.

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