Emerging Trends in The Social and Behavioral Sciences

Natural Resources and Development

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Natural Resources and Development

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Natural Resources and Development
KEVIN M. MORRISON

Abstract
The idea that there is a “resource curse”—that countries with more natural resources
tend to do poorly economically and politically—has gained widespread currency
in the popular press and elsewhere. Despite the paradoxical nature of the hypothesis, in some ways it seems intuitive because one can look around the world and see
many resource-rich countries that are authoritarian or seem to have squandered their
wealth. Nevertheless, recent research has cast doubts on whether there is actually a
relationship between natural resources and economic growth or democracy, once one
has controlled for other factors. And an alternative line of research argues that natural resources do affect these economic and political outcomes, but whether they do
so in a positive or negative way depends on the institutions a country has in place.
That is, countries with poor economic and political institutions will suffer a “curse,”
but countries with better institutions will not. In this entry, I review the foundational
works on natural resources and development as well as these more recent responses,
analyzing the trajectory of the literature and key issues for future research. Despite
two decades of intensive research, we still have much to learn about whether developing countries will suffer or benefit in an era of increasing commodity prices and
resource exploration.

INTRODUCTION
The idea that there is a “resource curse”—that countries with more natural
resources tend to poorly economically and politically—has gone beyond the
academic world and into the popular press (Friedman, 2006; Naím, 2009),
influencing a variety of policy-oriented organizations (Overseas Development Institute, 2006; Oxfam, 2009). As such, it is easy to overlook what a
counterintuitive hypothesis it is: that a country “blessed” with richness in its
soils should in fact be doomed to suffer because of those resources.
Nevertheless, as reviewed in the next section, that is exactly what the
foundational work on this topic has argued, and indeed, when one looks
around the world, it is easy to find examples of resource-rich countries that
are authoritarian or have squandered their riches, or both. However, more
recent work in this area has taken a more nuanced view, either questioning
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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whether the relationship between natural resources and development
holds after one has controlled for other factors, or inquiring about whether
countries with good institutions can control the effects of natural resources
and use them for the good of their people. A third section reviews these
works, followed by a concluding section that discusses important avenues
for future research.1
FOUNDATIONAL RESEARCH
Modern scholarship on the idea that there might be some sort of strongly
negative relationship between natural resources and economic and political
development began in earnest in the 1980s, with important case studies of
countries with these resources.2 In these early works, scholars looked at a
variety of different country experiences and concluded that the resources
provided great challenges for countries’ development both economically
(Auty, 1990; Gelb and associates, 1988) and politically (Beblawi & Luciani,
1987; Karl, 1997). There are essentially three reasons for this.
The first of these reasons is the appreciation of the real exchange rate that
often occurs with the discovery of natural resources, leading to a condition
often referred to as “Dutch Disease.” The rising exchange rate generally
makes exporting other (nonnatural resource) commodities more difficult.
And on the flip side, with imports now cheaper, it also becomes difficult
for domestic producers to compete in the local market. In addition, as local
labor and assets are used by the natural resource sector, their prices increase,
making them more expensive for producers in other sectors. The result is a
privileging of the natural resource and nontradeable sectors, crowding out
the traditional exports in an economy (manufacturing and/or agriculture).
In addition to Dutch Disease, natural resource exporters also face a problem of volatility in revenue. As Humphreys, Sachs, and Stiglitz (2007) have
discussed, this volatility has several sources, including resource extraction
rates that vary over time, governments’ back-loaded contracts with producing companies, world price fluctuations, and pro-cyclical lending that tends
to accentuate booms and busts. This volatility creates a problem for fiscal
policy: Because there are diminishing marginal benefits to public spending,
the social gain from spending more in some years does not make up for the
social cost of spending less in others.
The final causal mechanism (or set of mechanisms) linking natural
resources to a “curse” focuses on the ability for authoritarian governments
1. This essay uses material from two previously published articles (Morrison, 2012, 2013).
2. “Development” can certainly be conceived of in broader ways (Sen, 1999), but space constraints
limit this entry to largely equating economic development with economic growth, and political development with democratization, as has generally been the approach in the literature addressed here.

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with natural resource revenue to be unaccountable and stay in power longer.
Accountability arguments tend to center on the ability of governments with
these revenues to avoid taxing their citizens, which is often thought to have
played a key role in the development of Western representative institutions
(Tilly, 1990). Similarly, many explanations for the link between natural
resources and authoritarian political regimes have focused on revenue
(Anderson, 1995; Karl, 1997). These resources simply give political regimes
more money with which to pursue their various strategies for staying in
power.3
While these theoretical linkages seemed reasonable, the idea that there
might be a resource curse did not gain wide traction until scholars systematically compared the experiences of resource-rich countries with countries
that did not have these resources. This was the role of the seminal initial
studies that examined worldwide data to see if there was a statistically
significant correlation between natural resources and various measures of
economic and political development. On the economic side, the benchmark
work was by Sachs and Warner (1995, 1999), who showed that a high ratio
of natural resource exports to GDP was correlated with lower growth,
controlling for other factors.4 And on the political side, the benchmark work
was by Ross (2001), who showed that this same ratio was correlated with
less democracy, controlling for other factors.5
Essentially, all of the work in this area since the publication of these works
has been responding to them, and the newer works will be the focus of the
next section.
CUTTING-EDGE RESEARCH
There have been two main types of responses to the benchmark statistical
work of Sachs, Warner, and Ross. One has been empirical, and the other has
been theoretical.
The empirical response has been to see whether the negative correlation
between natural resources and development holds up as statistical techniques improve and as other data on natural resources become available.
This part of the response has resulted in important papers that question
the original findings, both on the economic side (Alexeev & Conrad, 2009;
Brunnschweiler & Bulte, 2008) and the political side (Brückner & Ciccone,
2012; Haber & Menaldo, 2011). These papers tend to show a null result
3. As Jensen and Wantchekon (2004, p. 821) state, “The key mechanism linking authoritarian rule
and resource dependence, both in democratic transition and democratic consolidation, is an incumbent’s
discretion over the distribution of natural resource rents.”
4. Other important cross-country work around the same time was that by Leite and Weidmann (2002).
5. Other important works around the same time were those by Jensen and Wantchekon (2004) and
Smith (2004).

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between measures of natural resources and the phenomenon in question (or
sometimes even a “positive” result, as opposed to a curse) when different
data or statistical techniques are used. It should be noted that there have also
been studies that corroborate the original “curse” hypotheses using newer
techniques, both on the economic (Arezki & van der Ploeg, 2011; Brückner,
2010) and political sides (Andersen & Ross, 2014; Ramsay, 2011; Tsui, 2011),
so that the current state of the empirical literature might be described as
“mixed.”
The second response to the benchmark works has been theoretical, and it
has largely consisted of bringing work on natural resources into the broader
theoretical work on economic and political development in the fields of
economics and political science. As the work on natural resources and
development was beginning, there was a sense that resource-rich countries
were simply different than other countries, and so many important scholarly
works in economics and political science would just exclude them from
their analyses of economic growth and democracy (e.g., Levine & Renelt,
1992; Przeworski, Alvarez, Cheibub, & Limongi, 2000). In the meantime, the
major thrust of the literature on economic growth and democracy in these
fields has been the importance of institutions in determining the trajectory
of countries’ political and economic development (Acemoglu, Johnson, &
Robinson, 2001; Engerman & Sokoloff, 1994; North, 1990; North & Weingast,
1989). As a result, the role of institutions came relatively late to the literature
on the resource curse.
Nevertheless, it has arrived: the theoretical response to the benchmark
works on the resource curse has been to explore the possibility that the
effects of natural resources are largely determined by the institutional
environment in which they are found. Indeed, looking back at the initial
reasons discussed earlier for the link between natural resources and poor
economic and political performance, one can see why institutions might
matter.
Dutch Disease, for example, does not have to occur when natural resources
are discovered—whether it does depends to a great extent on how the
government spends the resulting revenue. As Sachs (2007) has argued, “The
real fear of the Dutch Disease, in short, is that the non-oil export sector will
be squeezed, thereby squeezing a major source of technological progress
in the economy. But this fear is vastly overblown if the oil proceeds are being
properly invested as part of a national development strategy. If the proceeds from
oil are used not for consumption but for public investment, the negative
consequences of real exchange rate appreciation can be outweighed” (p. 184,
emphasis in original). In other words, a competent government can avoid
this aspect of the “resource curse” (also see Van Wijnbergen, 1984).

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Indonesia’s experience with its oil boom in the late 1970s demonstrates how
this might occur in practice. Instead of spending its increased revenue on
current spending (as Mexico did, e.g., by mainly promoting its state oil company), the Indonesian government spent the oil revenues on agriculture and
industry (the tradable sectors) in order to strengthen production. As Usui
(1997) notes, perhaps the most striking aspect of Indonesian policy was its
emphasis on agriculture. The Indonesian government used the oil revenues
to encourage a boom in rice production, promoting research and extension,
investment in irrigation, and subsidizing fertilizer use. The government’s
procurement agency kept the producer price of rice high and subsidized the
use of fertilizer in order to take advantage of new Green Revolution crops.
As a result of these incentives to farmers, Indonesia was self-sufficient in rice
production by the mid-1980s (Booth, 1988).
Similar to Dutch Disease, the volatility of commodity prices is a problem
that can be overcome with a competent government in place—one that can
“smooth” spending over a period of time. There are a variety of ways that
this can be accomplished, although the most popular option recently has
been to set up “natural resource funds,” which (when they function well)
store revenues when natural resources are booming and then augment public
spending when revenues diminish. For example, Chile established a Copper
Stabilization Fund (CSF) in 1985 with the purpose of stabilizing the exchange
rate and fiscal revenues in the context of rapidly changing copper revenues.
A savings rule transferred resources into the fund, at a rate based on the
difference between copper’s actual price and the government’s estimated
long-term copper price. The higher the actual price was in comparison to the
long-run price, the more resources were transferred (and vice versa, if the
price differential were negative). The fund has generally accomplished its
purpose, and budget expenditures have not closely followed revenue variability, as was the case before the CSF (Fasano, 2000).
Finally, the fact that the links between natural resources, accountability,
and authoritarian political regimes have focused on revenue, and how these
resources give political regimes more money with which to pursue their various strategies for staying in power, also suggests that the effects of this revenue may be contingent on the political institutions in place. It may simply
be that this revenue helps regimes and leaders stay in power, using whatever means are dictated by the political institutions in which they find themselves (Bueno de Mesquita & Smith, 2010; Morrison, 2014; Smith, 2008). As
I have argued elsewhere (Morrison, 2009), it may be that instead of having “anti-democratic” properties, or even “pro-democratic” properties, what
these revenues have are “stabilizing” properties, even being able to stabilize
democratic regimes.

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One good example of this dynamic is Botswana, a country that has benefited
from its natural resources economically and politically. Botswana’s growth
rate has been among the highest in the world over the past 40 years, and
it has had freely contested democratic elections since independence. In
their analysis of Botswana’s success, Acemoglu, Johnson, and Robinson
(2003, pp. 105–106) note the critical importance of the existing institutions
when diamonds appeared on the scene: “By the time the diamonds came
on stream, the country had already started to build a relatively democratic
polity and efficient institutions. The surge of wealth likely reinforced this.
Because of the breadth of the BDP [Botswana Democratic Party] coalition, diamond rents were widely distributed, and the extent of this wealth
increased the opportunity cost of undermining the good institutional path.”6
By contrast—although through a similar dynamic—when oil prices surged
in the 1970s and massive rents accrued to Mexico’s authoritarian party, it
stabilized that party against strong democratization forces (Magaloni, 2006;
Morrison, 2011).
In sum, the various negative effects that have been attributed to natural
resources may very well be caused by the revenue that these resources
generate and how governments use that revenue. For this reason, it is
not surprising that the most recent and important theoretical work on the
“resource curse” is highlighting the fact that these resources have very different effects depending on the institutional environment in place in a given
country (Bhattacharyya & Hodler, 2009; Hodler, 2006; Mehlum, Moene, &
Torvik, 2006; Robinson, Torvik, & Verdier, 2006). In beneficial institutional
environments, natural resources have no negative effect and can even
have positive economic impacts, while in poor institutional environments
these resources have negative effects. Similarly, on the political side, most
recent theoretical work has focused on how these resources can stabilize
democratic regimes and leaders, and not just authoritarian ones (Dunning,
2008; Goldberg, Wibbels, & Mvukiyehe, 2008; Morrison, 2009; Smith, 2008).
And this theoretical turn has been supported by several recent empirical
works (Bhattacharyya & Hodler, 2009; Boschini, Pettersson, & Roine 2007;
Hodler, 2006; Mehlum et al., 2006).
In sum, the benchmark works establishing negative relationships between
natural resources and development have received both an empirical
response, showing somewhat mixed empirical support for the initial results,
and a theoretical one, arguing that these resources have effects conditional
on their institutional environment.

6. For a less sanguine view of Botswana’s development path, see Hillbom (2008).

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KEY ISSUES FOR FUTURE RESEARCH
Given the preceding section, several issues present themselves as important
trajectories for future research. Perhaps most obviously, cross-national statistical work—which forms the overwhelming bulk of the recent research in
this area—should work toward resolving which of the following possibilities
in the literature are correct: natural resources either have a negative relationship with development, no systematic relationship, or a conditional one. The
sense of this reviewer is that the most promising line of inquiry is in the latter
area, as even the authors of the benchmark results have suggested in recent
work that institutions can change the effects of these resources (Ross, 2012;
Sachs, 2007). However, this line of inquiry faces both empirical and theoretical challenges, mainly relating to the specific kind of institutions that matter,
and how to measure them for empirical work. This, of course, is not a problem unique to work on natural resources (Woodruff, 2007).
It may be that in this endeavor, experimental work becomes a very useful
tool, as it enables the researcher to vary the important variables of interest in
a way that scholars cannot do with the observational data that has driven
most work on this topic to date. Until recently, there has been almost no
experimental work on the resource curse, but that is gradually changing, both
on the economic side (Al-Ubaydli, McCabe, & Twieg, 2012) and the political
one (Paler, 2013). When done well, experiments can give great insight into
the mechanisms that drive the results, and it may be that they will tell us
what sorts of institutional characteristics matter for the effects of resources
and—just as important—which ones do not.
An additional issue for future research, and one that has increasingly been
receiving attention in recent years, is the extent to which natural resource revenues are examples of a broader type of phenomenon. Similar to the dynamic
described earlier, in which natural resources have gradually been incorporated into the broader theoretical apparatus in economics and political science, natural resource revenues are increasingly being studied as examples of
the broader phenomenon of windfall gains to governments. Indeed, although
the benchmark statistical works focused on oil exclusively, it should be noted
that early discussions of these revenues made direct analogies to other kinds
of largely windfall revenues (Beblawi, 1987).
The principal external revenue with which natural resource revenue has
been compared is foreign aid (Bräutigam, 2000; Collier, 2006; Moore, 2001;
Morrison, 2007; Smith, 2008; Svensson, 2000; Therkildsen, 2002). As Collier
(2006, p. 1483) notes, “both are ‘sovereign rents’.” And in fact, it is striking to
note how similar the literatures on the effects of aid and natural resources are
in terms of focusing on Dutch disease, volatility, and political effects (Morrison, 2012). However, it is not only to foreign aid that comparisons are made.

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Increasingly, there is discussion of how similar the effects of natural resource
revenues may be to sovereign borrowing (Bueno de Mesquita & Smith, 2011)
and grants from central governments to lower levels of government in federal
systems (Brollo, Nannicini, Perotti, & Tabellini, 2013; Gervasoni, 2010).
These comparisons with other revenue sources are important for both
empirical and theoretical reasons. On the empirical side, they broaden the
domain in which these sorts of dynamics might be examined, opening
up the possibility of finding better research designs for studying resource
effects that might not otherwise have been possible (Ahmed, 2012; Litschig &
Morrison, 2013). And on the theoretical side, they point to potentially important mechanisms linking natural resources and development outcomes,
centering on how any effects of natural resources may be due to the way
they are translated into revenue for the government. Some recent work has
argued, for example, that the ownership structure of the natural resource
sector has determining effects for whether or not countries with natural
resources advance developmentally (Jones Luong & Weinthal, 2010).
In sum, two decades after the benchmark statistical works built on the existing case study literature to establish a “resource curse,” scholarship on the
topic remains extremely active. And indeed, that is as it should be: with commodity prices continuing to rise, and natural resource exploration continuing
worldwide, understanding whether or not countries can harness their natural resources for the good of their people remains as urgent a topic as ever.
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Van Wijnbergen, S. (1984). The ‘Dutch Disease’: A disease after all? The Economic Journal, 94(March), 41–55.
Woodruff, C. (2007). Measuring institutions. In S. Rose-Ackerman (Ed.), International
handbook on the economics of corruption (pp. 105–126). Northampton, MA: Edward
Elgar.

FURTHER READING
Frankel, J. A. (2010). The natural resource curse: A survey. NBER Working Paper No.
15836. Boston, MA: National Bureau of Economic Research.
Jones Luong, P., & Weinthal, E. (2006). Rethinking the resource curse: Ownership
structure, institutional capacity, and domestic constraints. Annual Review of Political Science, 9, 241–263.
Morrison, K. M. (2012). What can we learn about the ‘Resource Curse’ from foreign
aid? World Bank Research Observer, 7(1), 52–73.
van der Ploeg, F. (2011). Natural resources: Curse or blessing? Journal of Economic
Literature, 49(2), 366–420.

KEVIN M. MORRISON SHORT BIOGRAPHY
Kevin M. Morrison is an Assistant Professor of Public Policy and Political
Science at the University of Pittsburgh, where he teaches classes on quantitative methods and the political economy of developing countries. He has
previously held positions at Cornell University and Princeton University. His
research focuses on nontax revenues in developing countries, such as oil revenues, foreign aid, and intergovernmental grants, and it has been funded by
the National Science Foundation and the World Bank among other sources.
He is also a principal investigator of the Global Leadership Project, which
provides data on government leaders in 162 countries. His work has been
published in top journals in both political science and economics, and his article in International Organization won the 2009 Robert O. Keohane Award for
best paper in that journal by an untenured professor. He has maintained an
interest in communicating academic ideas to policy-oriented audiences as a
Fellow of the Overseas Development Council, a consultant to the World Bank
and Center for Global Development, a Delphi Fellow at bigthink.com, and a
member of the Africa Task Force, a group of policymakers and academics

Natural Resources and Development

13

co-directed by Kwesi Botchwey and Joseph Stiglitz at Columbia University’s
Initiative for Policy Dialogue.
Links: http://www.pitt.edu/∼kmm229/
http://www.globalleadershipproject.org/
RELATED ESSAYS
Global Economic Networks (Sociology), Nina Bandelj et al.
The Public Nature of Private Property (Sociology), Debbie Becher
Sociological Theory After the End of Nature (Sociology), Robert J. Brulle
Cities and Sustainable Development (Sociology), Christopher Cusack
Architecture of Markets (Sociology), Neil Fligstein and Ryan Calder
Property Rights and Development (Political Science), Timothy Frye
Interdependence, Development, and Interstate Conflict (Political Science),
Erik Gartzke
Modeling Coal and Natural Gas Markets (Economics), Franziska Holz
Innovation (Economics), Adam B. Jaffe
Technology Diffusion (Economics), Adam B. Jaffe
Built Environments and the Anthropology of Space (Anthropology), Gary W.
McDonogh
Cultural Conflict (Sociology), Ian Mullins
Economics of Renewable Energy Production (Economics), Gregory F. Nemet
Organizations and the Production of Systemic Risk (Sociology), Charles
Perrow
The Politics of Disaster Relief (Political Science), Alexander J. Oliver and
Andrew Reeves
Economics and Culture (Economics), Gérard Roland
Sustainability (Archaeology), Joseph A. Tainter et al.
The Social Science of Sustainability (Political Science), Johannes Urpelainen



Natural Resources and Development
KEVIN M. MORRISON

Abstract
The idea that there is a “resource curse”—that countries with more natural resources
tend to do poorly economically and politically—has gained widespread currency
in the popular press and elsewhere. Despite the paradoxical nature of the hypothesis, in some ways it seems intuitive because one can look around the world and see
many resource-rich countries that are authoritarian or seem to have squandered their
wealth. Nevertheless, recent research has cast doubts on whether there is actually a
relationship between natural resources and economic growth or democracy, once one
has controlled for other factors. And an alternative line of research argues that natural resources do affect these economic and political outcomes, but whether they do
so in a positive or negative way depends on the institutions a country has in place.
That is, countries with poor economic and political institutions will suffer a “curse,”
but countries with better institutions will not. In this entry, I review the foundational
works on natural resources and development as well as these more recent responses,
analyzing the trajectory of the literature and key issues for future research. Despite
two decades of intensive research, we still have much to learn about whether developing countries will suffer or benefit in an era of increasing commodity prices and
resource exploration.

INTRODUCTION
The idea that there is a “resource curse”—that countries with more natural
resources tend to poorly economically and politically—has gone beyond the
academic world and into the popular press (Friedman, 2006; Naím, 2009),
influencing a variety of policy-oriented organizations (Overseas Development Institute, 2006; Oxfam, 2009). As such, it is easy to overlook what a
counterintuitive hypothesis it is: that a country “blessed” with richness in its
soils should in fact be doomed to suffer because of those resources.
Nevertheless, as reviewed in the next section, that is exactly what the
foundational work on this topic has argued, and indeed, when one looks
around the world, it is easy to find examples of resource-rich countries that
are authoritarian or have squandered their riches, or both. However, more
recent work in this area has taken a more nuanced view, either questioning
Emerging Trends in the Social and Behavioral Sciences. Edited by Robert Scott and Stephen Kosslyn.
© 2015 John Wiley & Sons, Inc. ISBN 978-1-118-90077-2.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

whether the relationship between natural resources and development
holds after one has controlled for other factors, or inquiring about whether
countries with good institutions can control the effects of natural resources
and use them for the good of their people. A third section reviews these
works, followed by a concluding section that discusses important avenues
for future research.1
FOUNDATIONAL RESEARCH
Modern scholarship on the idea that there might be some sort of strongly
negative relationship between natural resources and economic and political
development began in earnest in the 1980s, with important case studies of
countries with these resources.2 In these early works, scholars looked at a
variety of different country experiences and concluded that the resources
provided great challenges for countries’ development both economically
(Auty, 1990; Gelb and associates, 1988) and politically (Beblawi & Luciani,
1987; Karl, 1997). There are essentially three reasons for this.
The first of these reasons is the appreciation of the real exchange rate that
often occurs with the discovery of natural resources, leading to a condition
often referred to as “Dutch Disease.” The rising exchange rate generally
makes exporting other (nonnatural resource) commodities more difficult.
And on the flip side, with imports now cheaper, it also becomes difficult
for domestic producers to compete in the local market. In addition, as local
labor and assets are used by the natural resource sector, their prices increase,
making them more expensive for producers in other sectors. The result is a
privileging of the natural resource and nontradeable sectors, crowding out
the traditional exports in an economy (manufacturing and/or agriculture).
In addition to Dutch Disease, natural resource exporters also face a problem of volatility in revenue. As Humphreys, Sachs, and Stiglitz (2007) have
discussed, this volatility has several sources, including resource extraction
rates that vary over time, governments’ back-loaded contracts with producing companies, world price fluctuations, and pro-cyclical lending that tends
to accentuate booms and busts. This volatility creates a problem for fiscal
policy: Because there are diminishing marginal benefits to public spending,
the social gain from spending more in some years does not make up for the
social cost of spending less in others.
The final causal mechanism (or set of mechanisms) linking natural
resources to a “curse” focuses on the ability for authoritarian governments
1. This essay uses material from two previously published articles (Morrison, 2012, 2013).
2. “Development” can certainly be conceived of in broader ways (Sen, 1999), but space constraints
limit this entry to largely equating economic development with economic growth, and political development with democratization, as has generally been the approach in the literature addressed here.

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3

with natural resource revenue to be unaccountable and stay in power longer.
Accountability arguments tend to center on the ability of governments with
these revenues to avoid taxing their citizens, which is often thought to have
played a key role in the development of Western representative institutions
(Tilly, 1990). Similarly, many explanations for the link between natural
resources and authoritarian political regimes have focused on revenue
(Anderson, 1995; Karl, 1997). These resources simply give political regimes
more money with which to pursue their various strategies for staying in
power.3
While these theoretical linkages seemed reasonable, the idea that there
might be a resource curse did not gain wide traction until scholars systematically compared the experiences of resource-rich countries with countries
that did not have these resources. This was the role of the seminal initial
studies that examined worldwide data to see if there was a statistically
significant correlation between natural resources and various measures of
economic and political development. On the economic side, the benchmark
work was by Sachs and Warner (1995, 1999), who showed that a high ratio
of natural resource exports to GDP was correlated with lower growth,
controlling for other factors.4 And on the political side, the benchmark work
was by Ross (2001), who showed that this same ratio was correlated with
less democracy, controlling for other factors.5
Essentially, all of the work in this area since the publication of these works
has been responding to them, and the newer works will be the focus of the
next section.
CUTTING-EDGE RESEARCH
There have been two main types of responses to the benchmark statistical
work of Sachs, Warner, and Ross. One has been empirical, and the other has
been theoretical.
The empirical response has been to see whether the negative correlation
between natural resources and development holds up as statistical techniques improve and as other data on natural resources become available.
This part of the response has resulted in important papers that question
the original findings, both on the economic side (Alexeev & Conrad, 2009;
Brunnschweiler & Bulte, 2008) and the political side (Brückner & Ciccone,
2012; Haber & Menaldo, 2011). These papers tend to show a null result
3. As Jensen and Wantchekon (2004, p. 821) state, “The key mechanism linking authoritarian rule
and resource dependence, both in democratic transition and democratic consolidation, is an incumbent’s
discretion over the distribution of natural resource rents.”
4. Other important cross-country work around the same time was that by Leite and Weidmann (2002).
5. Other important works around the same time were those by Jensen and Wantchekon (2004) and
Smith (2004).

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

between measures of natural resources and the phenomenon in question (or
sometimes even a “positive” result, as opposed to a curse) when different
data or statistical techniques are used. It should be noted that there have also
been studies that corroborate the original “curse” hypotheses using newer
techniques, both on the economic (Arezki & van der Ploeg, 2011; Brückner,
2010) and political sides (Andersen & Ross, 2014; Ramsay, 2011; Tsui, 2011),
so that the current state of the empirical literature might be described as
“mixed.”
The second response to the benchmark works has been theoretical, and it
has largely consisted of bringing work on natural resources into the broader
theoretical work on economic and political development in the fields of
economics and political science. As the work on natural resources and
development was beginning, there was a sense that resource-rich countries
were simply different than other countries, and so many important scholarly
works in economics and political science would just exclude them from
their analyses of economic growth and democracy (e.g., Levine & Renelt,
1992; Przeworski, Alvarez, Cheibub, & Limongi, 2000). In the meantime, the
major thrust of the literature on economic growth and democracy in these
fields has been the importance of institutions in determining the trajectory
of countries’ political and economic development (Acemoglu, Johnson, &
Robinson, 2001; Engerman & Sokoloff, 1994; North, 1990; North & Weingast,
1989). As a result, the role of institutions came relatively late to the literature
on the resource curse.
Nevertheless, it has arrived: the theoretical response to the benchmark
works on the resource curse has been to explore the possibility that the
effects of natural resources are largely determined by the institutional
environment in which they are found. Indeed, looking back at the initial
reasons discussed earlier for the link between natural resources and poor
economic and political performance, one can see why institutions might
matter.
Dutch Disease, for example, does not have to occur when natural resources
are discovered—whether it does depends to a great extent on how the
government spends the resulting revenue. As Sachs (2007) has argued, “The
real fear of the Dutch Disease, in short, is that the non-oil export sector will
be squeezed, thereby squeezing a major source of technological progress
in the economy. But this fear is vastly overblown if the oil proceeds are being
properly invested as part of a national development strategy. If the proceeds from
oil are used not for consumption but for public investment, the negative
consequences of real exchange rate appreciation can be outweighed” (p. 184,
emphasis in original). In other words, a competent government can avoid
this aspect of the “resource curse” (also see Van Wijnbergen, 1984).

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5

Indonesia’s experience with its oil boom in the late 1970s demonstrates how
this might occur in practice. Instead of spending its increased revenue on
current spending (as Mexico did, e.g., by mainly promoting its state oil company), the Indonesian government spent the oil revenues on agriculture and
industry (the tradable sectors) in order to strengthen production. As Usui
(1997) notes, perhaps the most striking aspect of Indonesian policy was its
emphasis on agriculture. The Indonesian government used the oil revenues
to encourage a boom in rice production, promoting research and extension,
investment in irrigation, and subsidizing fertilizer use. The government’s
procurement agency kept the producer price of rice high and subsidized the
use of fertilizer in order to take advantage of new Green Revolution crops.
As a result of these incentives to farmers, Indonesia was self-sufficient in rice
production by the mid-1980s (Booth, 1988).
Similar to Dutch Disease, the volatility of commodity prices is a problem
that can be overcome with a competent government in place—one that can
“smooth” spending over a period of time. There are a variety of ways that
this can be accomplished, although the most popular option recently has
been to set up “natural resource funds,” which (when they function well)
store revenues when natural resources are booming and then augment public
spending when revenues diminish. For example, Chile established a Copper
Stabilization Fund (CSF) in 1985 with the purpose of stabilizing the exchange
rate and fiscal revenues in the context of rapidly changing copper revenues.
A savings rule transferred resources into the fund, at a rate based on the
difference between copper’s actual price and the government’s estimated
long-term copper price. The higher the actual price was in comparison to the
long-run price, the more resources were transferred (and vice versa, if the
price differential were negative). The fund has generally accomplished its
purpose, and budget expenditures have not closely followed revenue variability, as was the case before the CSF (Fasano, 2000).
Finally, the fact that the links between natural resources, accountability,
and authoritarian political regimes have focused on revenue, and how these
resources give political regimes more money with which to pursue their various strategies for staying in power, also suggests that the effects of this revenue may be contingent on the political institutions in place. It may simply
be that this revenue helps regimes and leaders stay in power, using whatever means are dictated by the political institutions in which they find themselves (Bueno de Mesquita & Smith, 2010; Morrison, 2014; Smith, 2008). As
I have argued elsewhere (Morrison, 2009), it may be that instead of having “anti-democratic” properties, or even “pro-democratic” properties, what
these revenues have are “stabilizing” properties, even being able to stabilize
democratic regimes.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

One good example of this dynamic is Botswana, a country that has benefited
from its natural resources economically and politically. Botswana’s growth
rate has been among the highest in the world over the past 40 years, and
it has had freely contested democratic elections since independence. In
their analysis of Botswana’s success, Acemoglu, Johnson, and Robinson
(2003, pp. 105–106) note the critical importance of the existing institutions
when diamonds appeared on the scene: “By the time the diamonds came
on stream, the country had already started to build a relatively democratic
polity and efficient institutions. The surge of wealth likely reinforced this.
Because of the breadth of the BDP [Botswana Democratic Party] coalition, diamond rents were widely distributed, and the extent of this wealth
increased the opportunity cost of undermining the good institutional path.”6
By contrast—although through a similar dynamic—when oil prices surged
in the 1970s and massive rents accrued to Mexico’s authoritarian party, it
stabilized that party against strong democratization forces (Magaloni, 2006;
Morrison, 2011).
In sum, the various negative effects that have been attributed to natural
resources may very well be caused by the revenue that these resources
generate and how governments use that revenue. For this reason, it is
not surprising that the most recent and important theoretical work on the
“resource curse” is highlighting the fact that these resources have very different effects depending on the institutional environment in place in a given
country (Bhattacharyya & Hodler, 2009; Hodler, 2006; Mehlum, Moene, &
Torvik, 2006; Robinson, Torvik, & Verdier, 2006). In beneficial institutional
environments, natural resources have no negative effect and can even
have positive economic impacts, while in poor institutional environments
these resources have negative effects. Similarly, on the political side, most
recent theoretical work has focused on how these resources can stabilize
democratic regimes and leaders, and not just authoritarian ones (Dunning,
2008; Goldberg, Wibbels, & Mvukiyehe, 2008; Morrison, 2009; Smith, 2008).
And this theoretical turn has been supported by several recent empirical
works (Bhattacharyya & Hodler, 2009; Boschini, Pettersson, & Roine 2007;
Hodler, 2006; Mehlum et al., 2006).
In sum, the benchmark works establishing negative relationships between
natural resources and development have received both an empirical
response, showing somewhat mixed empirical support for the initial results,
and a theoretical one, arguing that these resources have effects conditional
on their institutional environment.

6. For a less sanguine view of Botswana’s development path, see Hillbom (2008).

Natural Resources and Development

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KEY ISSUES FOR FUTURE RESEARCH
Given the preceding section, several issues present themselves as important
trajectories for future research. Perhaps most obviously, cross-national statistical work—which forms the overwhelming bulk of the recent research in
this area—should work toward resolving which of the following possibilities
in the literature are correct: natural resources either have a negative relationship with development, no systematic relationship, or a conditional one. The
sense of this reviewer is that the most promising line of inquiry is in the latter
area, as even the authors of the benchmark results have suggested in recent
work that institutions can change the effects of these resources (Ross, 2012;
Sachs, 2007). However, this line of inquiry faces both empirical and theoretical challenges, mainly relating to the specific kind of institutions that matter,
and how to measure them for empirical work. This, of course, is not a problem unique to work on natural resources (Woodruff, 2007).
It may be that in this endeavor, experimental work becomes a very useful
tool, as it enables the researcher to vary the important variables of interest in
a way that scholars cannot do with the observational data that has driven
most work on this topic to date. Until recently, there has been almost no
experimental work on the resource curse, but that is gradually changing, both
on the economic side (Al-Ubaydli, McCabe, & Twieg, 2012) and the political
one (Paler, 2013). When done well, experiments can give great insight into
the mechanisms that drive the results, and it may be that they will tell us
what sorts of institutional characteristics matter for the effects of resources
and—just as important—which ones do not.
An additional issue for future research, and one that has increasingly been
receiving attention in recent years, is the extent to which natural resource revenues are examples of a broader type of phenomenon. Similar to the dynamic
described earlier, in which natural resources have gradually been incorporated into the broader theoretical apparatus in economics and political science, natural resource revenues are increasingly being studied as examples of
the broader phenomenon of windfall gains to governments. Indeed, although
the benchmark statistical works focused on oil exclusively, it should be noted
that early discussions of these revenues made direct analogies to other kinds
of largely windfall revenues (Beblawi, 1987).
The principal external revenue with which natural resource revenue has
been compared is foreign aid (Bräutigam, 2000; Collier, 2006; Moore, 2001;
Morrison, 2007; Smith, 2008; Svensson, 2000; Therkildsen, 2002). As Collier
(2006, p. 1483) notes, “both are ‘sovereign rents’.” And in fact, it is striking to
note how similar the literatures on the effects of aid and natural resources are
in terms of focusing on Dutch disease, volatility, and political effects (Morrison, 2012). However, it is not only to foreign aid that comparisons are made.

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EMERGING TRENDS IN THE SOCIAL AND BEHAVIORAL SCIENCES

Increasingly, there is discussion of how similar the effects of natural resource
revenues may be to sovereign borrowing (Bueno de Mesquita & Smith, 2011)
and grants from central governments to lower levels of government in federal
systems (Brollo, Nannicini, Perotti, & Tabellini, 2013; Gervasoni, 2010).
These comparisons with other revenue sources are important for both
empirical and theoretical reasons. On the empirical side, they broaden the
domain in which these sorts of dynamics might be examined, opening
up the possibility of finding better research designs for studying resource
effects that might not otherwise have been possible (Ahmed, 2012; Litschig &
Morrison, 2013). And on the theoretical side, they point to potentially important mechanisms linking natural resources and development outcomes,
centering on how any effects of natural resources may be due to the way
they are translated into revenue for the government. Some recent work has
argued, for example, that the ownership structure of the natural resource
sector has determining effects for whether or not countries with natural
resources advance developmentally (Jones Luong & Weinthal, 2010).
In sum, two decades after the benchmark statistical works built on the existing case study literature to establish a “resource curse,” scholarship on the
topic remains extremely active. And indeed, that is as it should be: with commodity prices continuing to rise, and natural resource exploration continuing
worldwide, understanding whether or not countries can harness their natural resources for the good of their people remains as urgent a topic as ever.
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FURTHER READING
Frankel, J. A. (2010). The natural resource curse: A survey. NBER Working Paper No.
15836. Boston, MA: National Bureau of Economic Research.
Jones Luong, P., & Weinthal, E. (2006). Rethinking the resource curse: Ownership
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van der Ploeg, F. (2011). Natural resources: Curse or blessing? Journal of Economic
Literature, 49(2), 366–420.

KEVIN M. MORRISON SHORT BIOGRAPHY
Kevin M. Morrison is an Assistant Professor of Public Policy and Political
Science at the University of Pittsburgh, where he teaches classes on quantitative methods and the political economy of developing countries. He has
previously held positions at Cornell University and Princeton University. His
research focuses on nontax revenues in developing countries, such as oil revenues, foreign aid, and intergovernmental grants, and it has been funded by
the National Science Foundation and the World Bank among other sources.
He is also a principal investigator of the Global Leadership Project, which
provides data on government leaders in 162 countries. His work has been
published in top journals in both political science and economics, and his article in International Organization won the 2009 Robert O. Keohane Award for
best paper in that journal by an untenured professor. He has maintained an
interest in communicating academic ideas to policy-oriented audiences as a
Fellow of the Overseas Development Council, a consultant to the World Bank
and Center for Global Development, a Delphi Fellow at bigthink.com, and a
member of the Africa Task Force, a group of policymakers and academics

Natural Resources and Development

13

co-directed by Kwesi Botchwey and Joseph Stiglitz at Columbia University’s
Initiative for Policy Dialogue.
Links: http://www.pitt.edu/∼kmm229/
http://www.globalleadershipproject.org/
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