The Oil Curse

It's been a standard trope of development economics that if a country is blessed with natural resources then it's likely to get an endless series of scumbag governments. Two reasons often given for this.

If the cash that comes from having huge oil fields is to be captured by running the Government then the ruthless thugs who want to get rich will attempt and, being ruthless thugs, often succeed, in capturing the government. If there were no such natural resources then wealth would actually be created by people doing creative and constructive things and that's not the sort of wealth that is so easily diverted, so the incentive for strongman rule by the scumbags simply isn't there.

The second is that if government is going to get the money it wants (or even needs in some cases) simply by taxing the miners (say) then they've no incentive to aid the rest of the economy in developing so that tax revenues can be raised from those other sectors.

It's long been an attractive theory but as John Tierney reports on a new paper, it might not actually be true. Do read it all, but the precis is:

We do indeed see a correlation between scumbag government and a dependence upon natural resource wealth but perhaps not the causation we often assumed. Those places with said thugs in power don't seem to have very much greater resource endowments than those places without the thugs. It's just that rule by scumbags prevents the other parts of the economy from growing meaning that natural resources make up a larger part of a much smaller economy.

A very interesting look at that old idea. I'd just add one data point:

But today Spain's GDP is bigger than that of all the 22 Arab countries combined,

A number of Arab League countries have a great deal of oil, but not a lot else. Natural resources dominating their economy might be thought, as in the old formulation, to be the cause of their bad governance. The new thought is that bad governance has led to their economies having nothing but the natural resources.