Resource Curse

AAA

DEFINITION of 'Resource Curse'

A paradoxical situation in which countries with an abundance of non-renewable resources experience stagnant growth or even economic contraction. The resource curse occurs as a country begins to focus all of its energies on a single industry, such as mining, and neglects other major sectors.


As a result, the nation becomes overly dependent on the price of commodities, and overall gross domestic product becomes extremely volatile. Additionally, government corruption often results when proper resource rights and an income distribution framework is not established in the society, resulting in unfair regulation of the industry. The resource curse is most often witnessed in emerging markets following a major natural resource discovery.


Also known as the "paradox of plenty".

INVESTOPEDIA EXPLAINS 'Resource Curse'

A commonly cited example of the resource curse is the Dutch disease, a situation which occurred in the Netherlands following a large natural gas find. The steps of the Dutch disease include:
1. A nation finds ample natural resource reserves
2. Economic focus begins to target this high-income industry
3. Skilled workers from other sectors transfer to the resource sector
4. Higher wages make the national currency less competitive
5. Other industries, especially the manufacturing sector, begin to suffer


Both, the Dutch disease and the resource curse have a paradoxical impact on the overall economy following the discovery of large natural resource reserves.

RELATED TERMS
  1. Public Good

    A product that one individual can consume without reducing its ...
  2. Carbon Dioxide Tax

    A tax on businesses and industries that produce carbon dioxide ...
  3. Potash

    Potash, from the Dutch potaschen, meaning "pot ashes," is the ...
  4. Tragedy Of The Commons

    An economic problem in which every individual tries to reap the ...
  5. Common Resource

    A resource, such as water or pasture, that provides users with ...
  6. Green Economics

    A methodology of economics that supports the harmonious interaction ...
Related Articles
  1. Economics

    What Is Happening To The BRIC Economies?

    Ten years ago, it was about the BRIC countries –Brazil, Russia, India, and China, and it was thought that capitalizing their resources would elevate them.
  2. Economics

    The Economic and Social Effects of Corruption

    Corruption results in inefficiencies in the operations of emerging economies, and prevents such economies from reaching the maximum level of development.
  3. Chart Advisor

    3 Energy Related Stocks Poised For A Pop

    A sharp decline in energy prices have created an interested opportunity in several oil-and-gas related companies. Given the strong downtrends apparent on the charts, most traders would use recent ...
  4. Economics

    Sanctions & Falling Oil Prices Hit Ruble Hard

    Russia, through its aggressive actions, has brought upon itself sanctions which, coupled with falling oil prices, have adversely impacted its economy.
  5. Economics

    Is the consumer price index (CPI) the best measure of inflation?

    Discover how the CPI is one of the most used indexes to measure inflation, but due to its limitations, the PPI and GDP deflator are also required.
  6. Professionals

    How Mukesh Ambani Has Expanded Reliance Industry

    Mukesh Ambani has expanded Reliance Industries and increased its revenues, but his public image, and that of his company, have not fared as well.
  7. Economics

    Can state and local governments in the US run fiscal deficits?

    Discover why most state and local governments do not – or cannot – run fiscal deficits in the same manner as the U.S. federal government.
  8. Active Trading Fundamentals

    How do central bank decisions affect volatility?

    Using an aggregate, macroeconomic perspective, take a look at how some of the ways central bank decisions can impact market volatility.
  9. Options & Futures

    What percentage of the global economy is comprised of the forest products sector?

    Find out what percentage of the global economy is comprised of the forest products sector, and learn why coming up with an accurate estimate may be difficult.
  10. Fundamental Analysis

    What does the term 'invisible hand' refer to in the economy?

    Discover and understand the concept of the "invisible hand" as explained by Adam Smith, considered the founder of modern economic theory.

You May Also Like

Hot Definitions
  1. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  3. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  4. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  5. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
  6. Bank Guarantee

    A guarantee from a lending institution ensuring that the liabilities of a debtor will be met. In other words, if the debtor ...
Trading Center