Natural Resource Wealth and Conflict: How Wealth Can Make You Poor

The prevailing view around 1950s and 1960s was that resource endowments would lead countries to political and economic development and would cooperate for government effectiveness (e.g. increase of accountability, control of corruption and reduction in poverty). Around 1970s economists found this was not the case and rather resource wealth was leading countries to abnormal slow economic growth and, weaker and less effective governments. A proposed analysis by Bannon and Collier illustrates how the discovery of new natural resource or a higher endowment has plausible distorted effects that “flow through a variety of channels, but most of these are amenable to policies and concerted global action” (2003). Thereafter, the adverse effect has been widely investigated by academic researchers whose findings mainly bring similar results to the table.

Literature has focused on determining the factors that lead to the reverse development and in most cases it is agreed the effect is driven by the existence of weak economic institutions. Therefore, the impact of natural resources wealth on the economic performance of a country depends on the quality of its institutions. I consider these findings relevant for the discussion and therefore, assume low-income countries whose dependence in primary commodity exports is high are more prone to undergo civil conflict. This is mainly because their governments incur a large proportion of their revenues from natural resources rents making them less accountable and transparent.

Conflict arises from a set of events, but I support the hypotheses that it will most likely occur if there is natural resource abundance with the combination of weak institutions. Moreover, weak institutions mostly characterized by lack of accountability, weak property rights, low contract enforceability and amongst others, raise the danger of civil war.
The question now proposed…could resource wealth cause poverty?
The answer may vary from country to country and from time to time thus, to answer this question I still rely on the above-suggested literature.
Moreover, conflict is defined as people rising up against their government as accountability decreases and corruption increases. Bannon et.al. (2003) suggest this happens as high poverty rates increase due to the poor role of their government in providing services such as education and health care to their citizens. Countries are more susceptible to conflict as the number of poor people rises. In addition, empirical evidence finds a strong correlation between greater dependence on oil and mineral exports and higher mortality rates (Ross, 2012) .Thus, after the provided evidence it is fair to conclude that resource wealth, under the assumptions mentioned above, increases poverty rates and certainly could lead to civil conflict.

Suggestions of Bannon and Collier state: “the resource curse is not a destiny it is rather a challenge for both national and international levels to adopt policies that better harness this potential” (2003).  The adverse effects of natural resource endowments could be avoided with the adequate policy instruments. As mentioned above, the civil conflict is driven by a country’s dependence on primary commodity exports therefore, policies must seek for economic diversification. There is a prevailing need for low-income countries to refine their institutions through its checks and balances otherwise the susceptibility of conflict will remain.

After the conclusion of this analysis, it seems appropriate to restate the following proposal for further thoughts… “Perhaps the problem is not natural resources rents and weak institutions; but perhaps this are rather normal institutions handling their revenues poorly and exceptional strong institutions are needed” (Ross, 2012).

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s