DP5688 Challenges and Opportunities for Resource Rich Economies

Author(s): Frederick van der Ploeg
Publication Date: May 2006
Keyword(s): corruption, cross-country and panel evidence, debt overhang, dependent economy, Dutch Disease, genuine saving, growth record, Hartwick Rule, Hotelling Rule, institutions, natural resource wealth management, optimal resource depletion, real exchange rate, resource curse, resource dividend, resource fund, rule of law, sustainable development, transparency
JEL(s): C12, C13, E1, F43, K42, O41, Q3
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5688

The political economy of resource rich countries is surveyed. The empirical evidence suggests that countries with a large share of primary exports in GNP have bad growth records and high inequality, especially if the quality of institutions and the rule of law are bad. The economic argument that a resource bonanza induces appreciation of the real exchange rate and a decline of non-resource export sectors may have some relevance. More important, a resource boom reinforces rent grabbing, especially if institutions are bad, and keeps in place bad policies. Optimal resource management may make use of the Hotelling rule and the Hartwick rule. However, a recent World Bank study suggests that resource rich economies squander their natural resource wealth and more often have negative genuine saving rates. Still, countries such as Botswana, Canada, Australia and Norway suggest it is possible to escape the resource curse. Some practical suggestions for a better management of natural resources are offered.