What is the resource curse in simple terms?

It is the pattern in which countries with lots of oil or minerals often grow more slowly and suffer more corruption, dictatorship and conflict than countries without them.

What is Dutch disease?

When resource exports bring in a flood of foreign currency, the currency strengthens and other export industries such as manufacturing lose competitiveness and shrink. It is named after the Netherlands after its 1960s gas discovery.

Resource Curse

📈 Economics By CampusDown Wiki Editorial Team Last updated October 26, 2026

The resource curse is the tendency of countries rich in natural resources such as oil, natural gas and minerals to experience slower economic growth, weaker democracy and more frequent conflict than resource-poor countries. Also called the paradox of plenty, the term was coined by Richard Auty in 1993.

Contents

1. Concept and evidence
2. Economic and political mechanisms
3. The role of institutions and escape routes
4. FAQ
5. References

Concept and evidence

Common sense says resources should be a blessing, yet many resource-rich countries disappointed in the late twentieth century. Studying mineral economies, Richard Auty (1993) coined the term resource curse, and Jeffrey Sachs and Andrew Warner (1995, 2001) presented cross-country regressions showing that countries with higher resource exports relative to GDP in 1970 grew more slowly per capita over 1970–1990. Nigeria saw per capita income stagnate despite hundreds of billions of dollars in oil revenue, and Venezuela, holder of the world's largest proven oil reserves, suffered economic collapse. Terry Karl (1997) called this the paradox of plenty and analyzed how oil booms reshape state institutions.

Economic and political mechanisms

The leading economic channel is Dutch disease, named after the Netherlands, where the discovery of natural gas in the 1960s raised the currency's value and eroded manufacturing competitiveness. Corden and Neary (1982) modeled how a resource boom raises the real exchange rate and draws labor and capital into the resource and nontradable sectors, shrinking manufacturing. Because manufacturing generates strong learning effects, long-run growth may suffer. High commodity price volatility also destabilizes budgets and investment. Political channels matter too. In a rentier state that relies on resource revenue rather than taxes, the government has weak incentives to be accountable to citizens, and rent-seeking and corruption over resource rents increase. Michael Ross (2001, 2012) documented an oil curse linking petroleum to durable authoritarianism, lower female labor participation and civil war, and Collier and Hoeffler (2004) found that dependence on primary commodity exports raises the risk of civil war. Robinson, Torvik and Verdier (2006) explained the political foundations whereby resource revenues increase politicians' clientelist spending.

The role of institutions and escape routes

Not every resource-rich country has failed. Mehlum, Moene and Torvik (2006) showed that resources aid growth where institutional quality is high and the curse appears only where institutions are weak, underlining the decisive role of institutions. Norway avoided Dutch disease by saving oil revenue in its Government Pension Fund, a sovereign wealth fund, and spending only expected returns under a fiscal rule, and Botswana managed diamond revenue transparently and achieved high growth. Humphreys, Sachs and Stiglitz (2007) proposed remedies such as transparent contracts, revenue disclosure and stabilization funds, and international norms such as the Extractive Industries Transparency Initiative (EITI) emerged. Brunnschweiler and Bulte (2008), however, raised a measurement problem: using resource abundance rather than resource dependence makes the curse vanish or even turn into a blessing. Van der Ploeg (2011) concluded that the curse is conditional rather than inevitable.

FAQ

What is the resource curse in simple terms?: It is the pattern in which countries with lots of oil or minerals often grow more slowly and suffer more corruption, dictatorship and conflict than countries without them.
What is Dutch disease?: When resource exports bring in a flood of foreign currency, the currency strengthens and other export industries such as manufacturing lose competitiveness and shrink. It is named after the Netherlands after its 1960s gas discovery.

Sources reviewed: 2026-10-26

References

Auty, R. M. (1993). Sustaining Development in Mineral Economies: The Resource Curse Thesis. London: Routledge.
Sachs, J. D., & Warner, A. M. (1995). Natural resource abundance and economic growth. NBER Working Paper No. 5398.
Sachs, J. D., & Warner, A. M. (2001). The curse of natural resources. European Economic Review, 45(4–6), 827–838.
Corden, W. M., & Neary, J. P. (1982). Booming sector and de-industrialisation in a small open economy. Economic Journal, 92(368), 825–848.
Ross, M. L. (2001). Does oil hinder democracy? World Politics, 53(3), 325–361.
Ross, M. L. (2012). The Oil Curse: How Petroleum Wealth Shapes the Development of Nations. Princeton: Princeton University Press.
Karl, T. L. (1997). The Paradox of Plenty: Oil Booms and Petro-States. Berkeley: University of California Press.
Mehlum, H., Moene, K., & Torvik, R. (2006). Institutions and the resource curse. Economic Journal, 116(508), 1–20.
Collier, P., & Hoeffler, A. (2004). Greed and grievance in civil war. Oxford Economic Papers, 56(4), 563–595.
Van der Ploeg, F. (2011). Natural resources: Curse or blessing? Journal of Economic Literature, 49(2), 366–420.
Brunnschweiler, C. N., & Bulte, E. H. (2008). The resource curse revisited and revised. Journal of Environmental Economics and Management, 55(3), 248–264.
Humphreys, M., Sachs, J. D., & Stiglitz, J. E. (Eds.). (2007). Escaping the Resource Curse. New York: Columbia University Press.
Robinson, J. A., Torvik, R., & Verdier, T. (2006). Political foundations of the resource curse. Journal of Development Economics, 79(2), 447–468.

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This article was last updated on October 26, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.