The Resource Curse Revisited

There is a curious phenomenon that economists call the resource curse - so named because, on average, countries with large endowments of natural resources perform worse than countries that are less well endowed. Yet some countries with abundant natural resources do perform better than others, and some have done well. Why is the spell of the resource curse cast so unequally?

Thirty years ago, Indonesia and Nigeria - both dependent on oil - had comparable per capita incomes. Today, Indonesia's per capita income is four times that of Nigeria. Indeed, Nigeria's per capita income (as measured in constant dollars circa 1995) has fallen.

A similar pattern holds true in Sierra Leone and Botswana. Both are rich in diamonds. Yet Botswana averaged 8.7% annual economic growth over the past thirty years, while Sierra Leone plunged into civil strife. The failures in the oil-rich Middle East are legion.

Economists put forward three reasons for the dismal performance of some richly endowed countries: