Natural Resource Curse Essay

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The natural resource curse, a phrase introduced by Auty (1993, 2001), is used to describe the negative relation of a country’s natural resources and its economic success. Natural resources are logically assumed to have a positive effect on a country’s economy. However, there is very little truth in this assumption as is argued in this essay.
Many countries of the world are endowed with natural resources such as oil, natural gas, coal and other mineral deposits. These include countries like those in the Middle East, Africa and Latin America. Despite all the riches of these countries, their economic growth is low. On the other hand countries like China, Japan and the ‘Asian Tigers’ have a much smaller endowment of these resources but still enjoy higher growth and better living standards.
The natural resource curse, therefore, is a
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This is the highest value the country’s produce would get. All other points on the PPF are on a lower Isovalue line and so producing point P is the best option for the economy. However with trade, the economy can export good 1 and import good 2 such that it consumes at point C. This would be on a higher indifference curve of U compared to the indifference curve that would be on point P (not shown). Assuming these initial conditions, suppose an export biased growth causes the PPF to shift to A’B’ (assuming good 1 is the exported good). This would lead to a change in the relative price of the two goods and so a change in the Isovalue line. The new Isovalue line is tangent to the new PPF at point P’. The highest indifference curve the economy can attain now is U’ and so the economy will consume at C’. As clearly visible, U is a higher indifference curve than U’ and so the economy is worse off as a result of the export biased growth caused by an increase in the factors of production or abundance of natural

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