TORONTO, ON-Countries rich in natural resources need sound
economic institutions such as rule of law, property rights,
open markets, and an independent judiciary in order to grow
their economies and avoid the "resource curse," concludes a new
study from independent research organization the Fraser
In recent years debate has flared over whether an abundance
of natural resources, such as minerals and metals, oil,
agricultural resources and so on, stimulates economic growth or
acts as a hindrance to growth, a concept known as the "curse"
of natural resources. Proponents of the idea of a "resource
curse" point to nations such as oil-rich Nigeria and Venezuela
and diamond-rich Sierra Leone, which experienced lower, and at
times negative, rates of economic growth compared to nations
that lack natural resources. As more developing nations seek to
utilize natural resource revenues to expand their economy, the
debate has intensified.
"There's no doubt that the economies of some countries have
floundered despite being rich in natural resources, but by no
means does that indicate all or even many resource-rich nations
are doomed to failure," said Fred McMahon, Fraser Institute
director of trade and globalization studies and editor of a new
Institute series of studies on the resource curse.
"Research from many different sources shows that nations
with strong institutions - the rule of law, open markets, and
limited government power - benefit from natural resources,
while those with weak institutions may in fact suffer from the
In Institutions, Economic Growth and the 'Curse' of Natural
Resources, author Amela Karabegovic examines the full range of research
on the resource curse and finds that much of the early research
neglected the role of economic institutions. She points out
that nations with good economic institutions are more capable
of managing the revenue from natural resources and decreasing,
if not eliminating, the adverse economic and political
consequence of a resource boom.
When sound institutions are absent, funds coming from
natural resources can deepen corruption, lead to conflict, and
strengthen the concentration of power of the ruling elite who,
directly or indirectly, manage these funds, instead of
stabilizing a country's budget and sparking economic
"Nations with sound and well-developed institutions
typically find that natural resources boost economic growth,
whereas nations with weak institutions appear to have turned
their natural resources into a curse," McMahon said.
"National leaders in developing nations seeking to build a
strong economy would be wise to focus on building sound
economic institutions-rule of law, property rights, an
independent judiciary and impartial judges, and limitations on
government power. These will increase prosperity and help their
country avoid a self-imposed curse of natural resources,"