Resource Curse

Key takeaways

• The resource curse is a paradox where countries rich in non-renewable resources underperform economically.
• Overreliance on a single resource sector can crowd out other industries and make growth vulnerable to commodity-price swings.
• Political effects—corruption, authoritarian entrenchment, and conflict—often accompany resource dependence.
• Economic diversification and value-chain development are critical to avoiding long-term stagnation.

What is the resource curse?

The resource curse (also called the resource trap or paradox of plenty) refers to the tendency for countries with abundant non-renewable resources—such as oil, gas, or minerals—to experience slower economic growth, weaker institutional development, and greater political instability than less resource-rich peers. Large resource revenues can concentrate economic activity and political power, reduce incentives to develop other productive sectors, and expose the economy to volatile global commodity prices.

The term is commonly attributed to Richard Auty, who explored the idea in his 1993 work on mineral economies.

How the curse works

Several interacting mechanisms explain why resource wealth can harm long-term development:
* Sectoral concentration: Investment, labor, and capital flow into the resource sector, leaving manufacturing, services, and broader domestic industries underdeveloped.
* Volatility: Heavy dependence on commodity exports makes public finances and growth highly sensitive to price swings.
* Institutional effects: Large resource rents can weaken governance by enabling corruption, rent-seeking, and patronage, and by reducing the need for broad-based taxation and accountability.
* Political risks: Resource wealth can strengthen authoritarian tendencies and increase the risk of conflict, particularly in low- and middle-income countries.

Key contributing factors

Studies find several recurring patterns in resource-rich countries:
* Petroleum wealth is especially associated with the resource curse.
* Resource dependence can boost authoritarianism, increase corruption, and trigger or prolong conflict.
* Lack of diversification leaves economies poorly equipped to handle global economic cycles.

Case studies

Angola

Angola is heavily dependent on oil and gas; roughly three-quarters of national revenues come from that sector. This concentration makes the economy very vulnerable to sustained declines in oil prices and hampers broader economic development.

Saudi Arabia

Saudi Arabia is a major oil exporter but has pursued active diversification strategies to reduce reliance on crude oil. Efforts include moving up the value chain in petroleum-related manufacturing and developing non-oil sectors such as finance, travel, tourism, and entertainment. These steps aim to broaden the economic base and reduce exposure to commodity-price volatility.

Mitigation strategies

To avoid or escape the resource curse, countries commonly pursue:
* Economic diversification—develop manufacturing, services, and value-added production to reduce dependence on raw commodity exports.
* Stronger institutions—improve transparency, rule of law, and public financial management to limit corruption and rent-seeking.
* Stabilization mechanisms—use sovereign wealth funds, fiscal rules, and savings buffers to smooth public spending across commodity cycles.
* Human capital and infrastructure investment—to support sustainable, broad-based growth.

Conclusion

Abundant natural resources can be a blessing or a burden. When resource wealth becomes the dominant economic engine without supportive institutions, diversification, and prudent fiscal management, countries risk stagnation, political distortions, and heightened volatility. Targeted policies that build other sectors, strengthen governance, and insulate public finances from commodity swings are essential for turning resource wealth into sustainable development.

Further reading

Annual Reviews — “What Have We Learned about the Resource Curse?”
Bloomberg — “The Resource Curse”
World Bank — country and macroeconomic data
International Trade Administration — country commercial guides
OPEC — country facts and figures
National development plans and diversification programs (e.g., Saudi Vision 2030)