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Most often the problem is seen in less developed countries with relatively concentrated and undiversified industrial sectors.Once a natural resource is discovered, available investment capital tends to gravitate to this industry.To the political economists on the other hand, external factors such as the volatility of world commodity prices, capital flight, tax evasion, colonialism, imperialism, neocolonialism and globalisation cause underdevelopment.
There are numerous hypotheses to account for this correlation, as I note in my book, .
Most obviously, easy resource revenues eliminate a critical link of accountability between government and citizens, by reducing incentives to tax other productive activity and use the revenue to deliver social services effectively.
This is particularly the case with oil producing countries like Russia, Saudi Arabia and Venezuela.
Saudi Arabia recently announced a new economic plan called Saudi Vision 2030 intended to diversify its economy away from the oil industry and break its resource curse. Economic focus begins to target this high-income industry3.
Fortunately, as my colleague Terra Lawson-Remer points out in a new CFR memo, all is not lost.
There are concrete steps the international community can take to help break this curse First, a few facts.The concentration of capital, labor and economic resources to a single industry can leave countries vulnerable to a downturn in that industry.Countries with more diversified economies tend to weather global economic cycles better than countries with concentrated economies.Among the many frustrations in development, perhaps none looms larger than the "resource curse." Perversely, the worst development outcomes--measured in poverty, inequality, and deprivation--are often found in those countries with the greatest natural resource endowments.Rather than contributing to freedom, broadly shared growth, and social peace, rich deposits of oil and minerals have often brought tyranny, misery, and insecurity to these nations.Therefore, these theorists conclude that the solution to the resource curse is 'free market' policies epitomised by the Washington Consensus.This thesis critically examines the RCT from a political economy standpoint and establishes that the resource curse effects are the same outcome described by political economists in the 1950s and 1960s as the underdevelopment of development.The resource curse is most often witnessed in emerging markets following a major natural resource discovery.The resource curse gets its name from the binary way in which it affects an economy.The difference in the choice of words to describe the same effects stems from the ideological standpoint from which Third World poverty and underdevelopment is discussed.To the resource curse theorists viewing from the standpoint of neoliberalism, internal factors such as political corruption, rent seeking, lack of transparency and good governance cause the resource curse.