The canonical growth threat: resource abundance — particularly oil and gas — is associated with slower economic growth, weaker institutions, and higher conflict risk than comparable resource-poor economies.
The mechanisms are multiple and mutually reinforcing. Dutch disease operates through real exchange rate appreciation that crowds out tradeable sectors, undermining the manufacturing and agricultural bases that drive sustainable growth. Institutional erosion follows from rent-seeking: when the state derives revenues from resources rather than citizens, the accountability relationship inverts. Fiscal volatility follows commodity price cycles, creating boom-bust dynamics that destabilise investment and planning. And resource rents can fund and motivate armed competition for state control.
The resource curse is better understood as a *risk* than a *fate*. Botswana avoided it. Norway managed it. But the preconditions for success — strong institutions, disciplined fiscal frameworks, diversified economies — are precisely what most resource-discovering LMICs lack.
How It Operates
Dutch Disease
Resource export revenues appreciate the real exchange rate, making non-resource exports uncompetitive and eroding the tradeable sector.
Institutional Erosion
Rent-seeking displaces productive governance. When the state revenues come from resources rather than taxpayers, citizen accountability weakens.
Fiscal Volatility
Commodity price swings destabilise budgets, creating procyclical spending that amplifies boom-bust cycles.
Conflict Risk
Resource rents fund and motivate armed competition for state control — particularly in weakly institutionalised states.
Policy Implications
- → Sterilise resource revenues through a well-designed sovereign wealth fund — but only when institutions are strong enough to manage it
- → Maintain competitive non-resource tradeable sectors through industrial policy and exchange rate management
- → Build countercyclical fiscal rules that save during booms and spend during busts
- → Strengthen institutions before the resource boom, not in response to it