Corruption, Transparency and the Resource Curse

Abstract

Decades ago, the common sense was that natural resource abundance was a blessing for developing countries. Yet those countries blessed with abundant natural resources seem to suffer from the so called "resource curse." In this paper we summarize the dynamics of the resource curse and review the major economic explanations for the curse: limited economic diversification, revenue volatility, and an ailment commonly known as the "Dutch Disease". We review the political explanation of the resource curse, which includes short sightedness among policymakers, poor wealth management and lack of human capital. Furthermore, we discuss whether transparency can break the resource curse and illustrate the manifestation of the resource curse in Libya, and contrasting Libya's experience with Botswana's successful wealth management then propose a number of policy recommendations for combating the resource curse, drawing from Botswana's successful policies.