The Resource Curse: Commodities, Growth and Dutch Disease

It might seem that discovering oil, gas or minerals would guarantee prosperity, yet many resource-rich countries have grown more slowly than resource-poor ones, a pattern called the 'resource curse'. Economists Jeffrey Sachs and Andrew Warner found this correlation in a 1995 study. One mechanism is 'Dutch disease', named after the Netherlands' experience after its natural gas discoveries: resource exports push up the currency, making manufacturing and agriculture less competitive. Volatile commodity prices make government budgets swing wildly.

Resource wealth can also weaken institutions: governments funded by oil rents need less taxation and may feel less accountable to citizens, and control of resources can fuel corruption or conflict. Yet the curse is not destiny. Botswana used diamond revenues to fund schools and roads under relatively strong institutions, and Norway saves oil revenue in a sovereign wealth fund. These cases suggest institutions and policy choices determine whether resources become a blessing.