The artefact of the Natural Resources Curse

TL;DR

This paper reexamines the natural resource curse hypothesis, showing that resource-rich countries do not necessarily perform poorly and that leadership and governance improvements can enhance resource management.

Contribution

It provides new insights into the conditions under which resource wealth leads to poor outcomes and models strategic interactions influencing resource management through governance.

Findings

Resource-rich countries are not inherently poor in performance.

Low diversification correlates with poor performance in resource-rich countries.

Better leadership and governance improve resource management and outcomes.

Abstract

This paper reexamines the validity of the natural resource curse hypothesis, using the database of mineral exporting countries. Our findings are as follows: (i) Resource-rich countries (RRCs) do not necessarily exhibit poor political, economic and social performance; (ii) RRCs that perform poorly have a low diversified exports portfolio; (iii) In contrast, RRCs with a low diversified exports portfolio do not necessarily perform poorly. Then, we develop a model of strategic interaction from a Bayesian game setup to study the role of leadership and governance in the management of natural resources. We show that an improvement in the leadership-governance binomial helps to discipline the behavior of lobby groups (theorem 1) and generate a Pareto improvement in the management of natural resources (theorem 2). Evidence from the World Bank Group's CPIA data confirms the later finding. Our results remain valid after some robustness checks.