Monday, May 12, 2008

Rethinking the Oil Curse.

I’ve been skeptical of some of the alleged evils of petroleum, but I bought into the recently popular idea among development experts that reserves of oil and other natural resources are a curse to many countries. What I saw while reporting in Iraq jibed with academic studies concluding that a wealth of natural resources did a country more harm than good. It was an appealing and clever counterintuitive idea — but perhaps too clever by half.

A report in Science argues that the “resource curse” theory is dubious because scholars (like Jeffrey Sachs and Andrew Warner) have been looking at the wrong data in studies showing that countries heavily dependent on exports of natural resources are exceptionally prone to slow economic growth, high rates of poverty, authoritarian rule, corruption and violent conflict. The easy money from natural resources, the curse theory went, helped finance civil wars and also weakened civil institutions by enabling repressive governments to buy off opponents and stay in power despite policies that stifled the rest of the economy.

But the new report in Science argues that the causation goes in the opposite direction: The conflicts and bad policies created the heavy dependence on exports of natural resources. When a country’s chaos and economic policies scare off foreign investors and send local entrepreneurs abroad to look for better opportunities, the economy becomes skewed. Factories may close and businesses may flee, but petroleum and precious metals remain for the taking. Resource extraction becomes “the default sector” that still functions after other industries have come to a halt, according to the authors, C. N. Brunnschweiler of the Swiss Federal Institute of Technology and E.H. Bulte of the Oxford Center for the Study of Resource-Rich Economies.

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