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Sunday 20 Aug 2017 | 12:07 | SYDNEY
Sunday 20 Aug 2017 | 12:07 | SYDNEY

Managing the 'devil's excrement'

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12 November 2009 09:50

Apropos of Sam's recent post on the benefits of Russia's oil wealth, there is of course a vast literature on the resource curse, which highlights the apparent paradox that economies blessed with abundant natural resources tend to underperform those without. Famously, former Venezuelan Oil Minister and OPEC co-founder Juan Pablo Perez Alfonzo described oil as 'the devil's excrement.'

Since economic theory suggests that, all else being equal, more abundant natural resources should be good for economic growth (just as more abundant human or other capital is a good thing), this 'paradox of plenty' has grabbed a lot of attention. One popular explanation rests on differences in the quality of national institutions. This seems appealing, since, as this paper points out, there are plenty of economies – Australia, Canada, the US and Norway for example – where resources have been an important positive factor in stimulating development. 

The Fraser Institute released a report last month arguing along similar lines, making the case that the quality of economic institutions is crucial in determining how natural resources affect economic growth. Since creating and sustaining strong institutions seems to be a pretty challenging process, managing the benefits of resources is, as Sam says, not 'easy'.

Photo by Flickr user chrisjfry, used under a Creative Commons license.

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