The recourses curse is “the phenomenon of countries with an abundance of natural resources (such as fossil fuels and certain minerals) having less economic growth or worse development outcomes than countries with fewer natural resources”. The recourse curse was initially detected from the “Dutch disease”. This refers to the problem the Netherlands faced, in which there was an economic decline after the discovery of a large Groningen natural gas field (1959). The Dutch disease is the apparent relationship between the rise of one sector’s primary natural recourse and the decline of all other sectors.
Intuitively, one might think that discovering an abundant natural resource would lead to an increase in economic development as it would stimulate economic activity. But historically, this wasn’t the case. As it turned out, a sudden discovery of an abundant natural recourse increases revenue, increasing the demand for local currency. This leads to an increase in local currency value relative to other countries. This makes the nation exports seem more expensive for foreign countries as the value of the local currency is higher whilst imports seem cheaper for local buyers. This, in effect, makes the nations other sectors less competitive, leading to their decline.
Furthermore, another aspect that is often excluded is that when a country finds itself generating sufficient funds from that recourse, it becomes overly reliant. And as such, the government usually starts neglecting other fields such as the manufacturing sectors and investing in human recourses (education and training). This’s why rich recourse countries often underperform in many aspects compared to countries like Singapore, Hong Kong and Japan with little recourse.
Now, moving to the Middle East. In the past century, the economies of most Middle Eastern countries have largely been dependent and shaped by oil and gas. The revenue of oil has largely formed the social, economic, and political life. Shaping both domestic and external policies of such countries. This has resulted in a relatively poorly performing manufacturing sector. Furthermore, it made such countries liable to oil price influxes.
To move forward and minimize the impact of the recourse curse, such countries not only in the Middle East but also in South America must learn from history and implement policies to diversify their economies further, using the Hamilton approach. Although there have been conscious attempts, it hasn’t yet led to the change needed, as indicated by economic development indexes. If not implemented soon, the impact of the post-oil period on such countries’ social and economic life would be detrimental.
