Backgrounder No. 10
The phenomena of the “paradox of plenty” or the “resource curse” in Sub-Saharan Africa (SSA) is well-known and documented. Both terms refer to the prevalence of slow growth rates despite large natural resource endowments. This paper will examine the underlying causes of the natural resource curse and briefly explore why most SSA countries become embroiled in its costly and negative practices.
The possible causes of the natural resource curse can be categorized into two types of factors: economic and institutional. The economic explanation of the negative effects of natural resource dependence on growth is termed the “Dutch disease,” referring to the decline of other tradable sectors resulting from the boom in the natural resources sector (Sandbu, 2005). This surge tends to draw capital and labour away from manufacturing, resulting in the rise of manufacturing costs and reducing export-led growth in the long run (Bulte et al., 2003).
The resource curse is also dependent on the type of natural resources a country is endowed with. Countries with point source resources that are extracted from narrow and select natural resources tend to manifest much higher levels of corruption and stagnant growth rates than countries with less concentrated or diffuse resources, such as agriculture, fisheries and livestock (Kolstad and Soreide, 2009). Countries in SSA with rich endowments in oil, precious metals, diamonds and other minerals are notorious for their bad institutions, bleak growth rates and dismal development outcomes. On the other hand, countries with more diffuse resources tend to exhibit a more inclusive and cooperative environment with less corruption and more stable growth rates.
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