The paper "Natural Resources: Curse or Blessing?" by Frederick van der Ploeg explores the complex relationship between natural resources and economic development. It surveys various hypotheses and empirical evidence to understand why some countries benefit from their natural resource wealth while others do not. The key points include: 1. **Dutch Disease**: A resource boom can lead to an appreciation of the real exchange rate, deindustrialization, and reduced competitiveness in the non-resource sectors. This is often accompanied by increased rent-seeking and corruption, especially in countries with weak institutions and high volatility. 2. **Learning by Doing**: The positive externalities from the traded sector, such as learning by doing, can be curtailed by a resource boom, leading to a temporary loss in economic growth. This is particularly relevant if the traded sector is the engine of growth. 3. **Institutions and Corruption**: Good institutions and low corruption are crucial for turning the resource curse into a blessing. Countries with strong institutions and low corruption are less likely to experience negative growth due to resource dependence. 4. **Volatility and Financial Systems**: Volatile resource rents can have negative effects on economic stability, while well-developed financial systems can mitigate these effects. Financial systems help in managing the volatility and ensuring sustainable growth. 5. **Rent-Seeking and Conflict**: Resource rents can be exploited for rent-seeking activities, leading to civil conflict and widespread inequality. Well-functioning financial systems and strong institutions can help prevent this. 6. **Savings and Investment**: Many resource-rich developing countries fail to reinvest their resource rents effectively, leading to low levels of genuine saving and sustainable growth. The paper discusses hypotheses such as "anticipation of better times" and "voracious rent seeking" to explain this phenomenon. 7. **Welfare-Based Fiscal Rules**: The paper offers welfare-based fiscal rules to help resource-rich economies harness the benefits of their resource windfalls, emphasizing the importance of capital scarcity, absorption problems, and volatile revenue streams. Overall, the paper highlights the need for a nuanced understanding of how natural resources can both curse and bless economies, depending on the quality of institutions, governance, and policy frameworks.The paper "Natural Resources: Curse or Blessing?" by Frederick van der Ploeg explores the complex relationship between natural resources and economic development. It surveys various hypotheses and empirical evidence to understand why some countries benefit from their natural resource wealth while others do not. The key points include: 1. **Dutch Disease**: A resource boom can lead to an appreciation of the real exchange rate, deindustrialization, and reduced competitiveness in the non-resource sectors. This is often accompanied by increased rent-seeking and corruption, especially in countries with weak institutions and high volatility. 2. **Learning by Doing**: The positive externalities from the traded sector, such as learning by doing, can be curtailed by a resource boom, leading to a temporary loss in economic growth. This is particularly relevant if the traded sector is the engine of growth. 3. **Institutions and Corruption**: Good institutions and low corruption are crucial for turning the resource curse into a blessing. Countries with strong institutions and low corruption are less likely to experience negative growth due to resource dependence. 4. **Volatility and Financial Systems**: Volatile resource rents can have negative effects on economic stability, while well-developed financial systems can mitigate these effects. Financial systems help in managing the volatility and ensuring sustainable growth. 5. **Rent-Seeking and Conflict**: Resource rents can be exploited for rent-seeking activities, leading to civil conflict and widespread inequality. Well-functioning financial systems and strong institutions can help prevent this. 6. **Savings and Investment**: Many resource-rich developing countries fail to reinvest their resource rents effectively, leading to low levels of genuine saving and sustainable growth. The paper discusses hypotheses such as "anticipation of better times" and "voracious rent seeking" to explain this phenomenon. 7. **Welfare-Based Fiscal Rules**: The paper offers welfare-based fiscal rules to help resource-rich economies harness the benefits of their resource windfalls, emphasizing the importance of capital scarcity, absorption problems, and volatile revenue streams. Overall, the paper highlights the need for a nuanced understanding of how natural resources can both curse and bless economies, depending on the quality of institutions, governance, and policy frameworks.