The resource curse and its implications for fiscal policy
Purpose. The «resource curse» suggests that natural resources have been a curse instead of a blessing for a number of countries. Resource abundance leads to political and social tensions, lower economic growth, rent-seeking, and poor decision-making according to this theory. Mainly, natural abundance constitutes a difficulty for policy decision-makers. A high share of natural resources in the export of a country makes a country vulnerable to changes in resource prices on the world market. This study analyzes the management of the resource revenues from theoretical and practical view in a form of case studies of selected countries rendering both failure and success stories. The aim of the study is to identify challenges connected with dependency on natural resources (measured by the share in the country’s export) and frame up fiscal policy recommendations for countries with natural resource abundance.
Methodology / approach. Since the resource curse is the phenomena which must be explored from a wider perspective, the chosen methodology is a qualitative country analysis and cross-country comparison.
Results. Data analysis in the period 2008–2018 shows that even countries that have transformed the resource curse into a blessing were hit by a fall in commodity prices in 2015 too. The paper confirms the pro-cyclical nature of fiscal policies in Nigeria and Mexico and the counter-cyclical nature of these policies in Chile and Botswana. Examples of good practice (Chile, Botswana) are shown.
Originality / scientific novelty. In the theoretical part of the paper, the recommendations for fiscal sustainability to present are summarized. In the practical part, another sample of countries with up-to-date data is analyzed in hand with a description of the main steps taken by local governments.
Practical value / implications. Both theory and practical examples are supposed to help to policy-makers in countries, which must deal with volatility in commodity prices. The main implication is to establish a fiscal rule which is resistant to any amendment and its compliance is controlled by the external institution.
Sachs, J. D. and Warner A. M. (1995), Natural Resource Abundance and Economic Growth. National Bureau of Economic Research. Working Paper No. 5398. https://doi.org/10.3386/w5398.
Natural Resource Governance Institute (2015), The Resource Curse. The Political and Economic Challenges of Natural Resource Wealth. NRGI Reader.
Venables, A. J. (2016), Using Natural Resources for Development: Why Has It Proven So Difficult? The Journal of Economic Perspectives, vol. 30, no. 1, pp. 161–183. https://doi.org/1257/jep.30.1.161.
Warner, A. (2015), Natural Resource Booms in the Modern Era: Is the curse still alive? IMF, WP/15/237.
Corden, M. W. and Neary, P. J. (1982), Booming Sector and De-Industrialisation in a Small Open Economy. The Economic Journal, vol. 92, no. 368, pp. 825–848. https://doi.org/10.2307/2232670.
Harding, T. and Venables, A. J. (2016), The Implications of Natural Resource Exports for Nonresource Trade. IMF Economic Review, vol. 64, is. 2, pp. 268–302. https://doi.org/10.1057/imfer.2015.43.
Ploeg, van der F. and Poelhekke, S. (2009), Volatility and the natural resource curse. Oxford Economic Papers, vol. 61, is. 4, pp. 727–760. https://doi.org/10.1093/oep/gpp027.
UN Comtrade (2019), available at: https://comtrade.un.org.
Cavalcanti, T., Mohaddes, K. and Raissi, M. (2011), Commodity Price Volatility and the Sources of Growth. IMF Working Paper, WP/12/12. https://doi.org/10.2139/ssrn.1846429.
Lane, P. R. and Tornell, A. (1996), Power, Growth, and the Voracity Effect. Journal of Economic Growth, vol. 1, is. 2, pp. 213–241. https://doi.org/10.1007/BF00138863.
Hadri, K. (2011), Primary Commodity Price Series: Lessons for Policymakers in Resource-Rich countries. In Beyond the Curse: Policies to Harness the Power of Natural Resources. IMF, pp. 119–130.
Deaton, A. (1999), Commodity prices and growth in Africa. Journal of Economic Perspectives, vol. 13, pp. 23–40. https://doi.org/10.1257/jep.13.3.23.
Weinthal, E. and Luong, P. J. (2006), Combating the Resource Curse: An Alternative Solution to Managing Mineral Wealth. Perspectives on Politics, vol. 4, no. 1, pp. 35–53. https://doi.org/10.1017/S1537592706060051.
Hamilton, K. and Ley, E. (2011), Sustainable Fiscal Policy for Mineral-Based Economies. In Beyond the Curse: Policies to Harness the Power of Natural Resources. IMF, pp. 131–148.
Sunley, E. M., Baunsgaard, T. and Simard, D. (2002), Revenue from the Oil and Gas Sector: Issues and Country Experience. IMF.
Frankel, J. A. (2012), The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions. Faculty Research Working Paper Series, RWP12-014, Harvard University.
Coutinho, L. (2011), The Resource Curse and Fiscal Policy. Cyprus Economic Policy Review, vol. 5, no. 1, pp. 43–70.
Asfaha, S. G. (2007), National Revenue Fund. Their efficacy for fiscal stability and inter-generational equity. International Institute for Sustainable Development, Winnipeg, Manitoba.
Gylfason, T. (2001), Natural resources, education and economic development. European Economic Review, vol. 45, is. 4–6, pp. 847–859. https://doi.org/10.1016/S0014-2921(01)00127-1.
Cockx, L. and Francken, N. (2015), Is there a Natural Resource Curse on Education Spending? Working Paper 2015.02. https://doi.org/10.13140/RG.2.1.4072.9122.
Mehlum, J., Moene, K. and Torvik, R. (2006), Institutions and the resource curse. The Economic Journal, vol. 116, is. 508, pp. 1–20. https://doi.org/10.1111/j.1468-0297.2006.01045.x.
Natural Resource Governance Institute (2014), Natural Resource Charter. Second Edition, NRGI.
Ploeg, van der F. (2011), Natural Resources: Curse or Blessing? Journal of Economic Literature, vol. 49, no. 2, pp. 366–420. https://doi.org/10.1257/jel.49.2.366.
Natural Resource Governance Institute (2016), Country Strategy Note: Nigeria. NRGI.
Central Bank of Nigeria (2019), available at: https://www.cbn.gov.ng.
Open Data for Africa (2019), available at: http://dataportal.opendataforafrica.org.
National Resources Governance Institute (2019), available at: http://www.resourcegovernance.org.
Transparency International, Corruption Perception Index (2019), available at: https://www.transparency.org/cpi2018.
Environmental Performance Index. Yale – Center for Environmental Law and Policy (2019), available at: http://epi.envirocenter.yale.edu/epi-topline.
Everhart, S. and Duval-Hernandez, R. (2001), Management of Oil Windfalls in Mexico: Historical Experience and Policy Options for the Future. World Bank Policy Research, Working Paper 2592. https://doi.org/10.1596/1813-9450-2592.
Natural Resource Governance Institute (2017), Country Strategy Note: Mexico, NRGI.
OECD (2019), available at: http://www.oecd.org.
Macrotrends – Research Platform for Long Term Investors (2019), available at: https://www.macrotrends.net.
UN, Human Development Index (2019), available at: http://hdr.undp.org/en/countries.
Lewin, M. (2011), Botswana’s Success: Good Governance, Good Policies, and Good Luck, available at: http://siteresources.worldbank.org/AFRICAEXT/Resources/Botswana_success.pdf.
Bank of Botswana (2019), available at: https://www.bankofbotswana.bw.
World Bank (2019), available at: http://data.worldbank.org.
Goldprice (2019), available at: https://goldprice.org.