The
curse of riches or
resource curse has been a
staple of development economics for decades. The curse refers to the
striking fact that many resource rich states, such as Nigeria and Congo,
are conflict-ridden basket cases while some of the world’s best
performing economies are islands or city-states, such as Japan, Taiwan,
and Hong Kong.
Numerous empirical studies have confirmed the existence of a curse, most famously a
1995 NBER working paper
by Jeffrey Sachs and Andrew Warner. Sachs and Warner noted that over
the 20-year period from 1970 to 1990, countries with a high percentage
of natural resource exports grew systematically slower than did those
with few resources. The following chart replots the data from their
paper:
Over
the years, development economists have suggested several ways in which
resource wealth might lead to poor economic outcomes. Two mechanisms
seem especially important, one of them focusing on exchange rates and
the so-called Dutch disease, and the other on political economy and
impediments to social progress. This post uses the recently released
Social Progress Index (SPI) to shed new light on their relative importance.
>>>Read more
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