Resource-rich Countries; Cursed or Blessed?

True - at least, at the rate we're going.

In a blog post at one of my favorite blogs / author, a recent study was conducted to refute a research paper claiming that countries with natural resources tends to result in slower economic growth compared to those which are lacking in natural resources. The so called Resource Curse (not to be compared to Dutch Disease) claims that the abundance or availability of natural resources within a country would eventually lead to unfavorable economic outcomes compared to countries which are bare stripped. Since I have yet to find the time to read both papers (will probably write up a summary plus my own personal opinion into it), I'll start by analysing both the Resource Curse and Dutch Disease terms to see whether both of them are justified.

Resource Curse essentially states that countries rich in natural resource tend to grow much slower than countries without them. Based on my readings, the curse is meant to affect a country in several ways;

1. Ineffecient Government System - Revenues from natural resources tends to place the government in a complacent position, in addition to not needing to develop an effecient taxation system (therefore, the public will not scrutinize the government as they pay a miniscule amount of tax). Naturally, arguments over budget allocations would also ensue between each government departments and agencies resulting in a further ineffecient system; emphasizing on one's needs rather than the people.
2. Revenue Volatility - During peaks of commodity prices, both the government and private sector will attempt more aggressive and expansionary policies; borrowing excessively without any proper justifications or evaluations. This may result in bankruptcy or large amounts of debts due as a result of the illusion from the high price of natural resource.
3. Non-diverse Economy & Human Capital - Naturally, the country's economy and human capital would encircle around the natural resource due to the high revenue it which it brings in. There are also claims that this would eventually result in the country neglecting its education-infrastructure, as resource-extraction does not require a large number of highly skilled and talented workforce.

On the other hand, the Dutch Disease refers to the relationship between increase in dependance of natural resource exports resulting in a decline within the manufacturing sector. Essentially, the term refers to the shifts from the manufacturing sector, to both the natural resource sector (be it in the form of raw, manufactured goods or service related) in what is coined as both direct (manufactured) and indirect (services)deindustrialization. In order to minimize the effect, the revenues should be stored or invested abroad (through soverign wealth funds for example) and then revenues brought back over time in order to allow a more stable flow of income (something which I think Brunei is doing; rich, prosperous, and definitely resource dependant - they even have their currency pegged to the Singapore Dollar).

So.

What does all of this tell us? That at the end of the day, essentially (the way I see it) is just how you manage your resource. Now apparently the newer paper does not find any correlation or links between natural resource and economic growth (at least not negative; in fact they found some positive relationships). You can either go with a capitalistic approach (Netherlands, America) or a more socialist approach (Brunei) however at the end of the day, its the corruption-free and effecient management that truly matters. Despite America's criticism over Hugo Chaves' move to nationalize their state-owned oil company, if corruption still runs rampat; it would not pay its fair share on the toll. In any case, until I read both of the papers seperately, I can't really jump to a conclusion on this matter.

But I'm really curious as to which of the two I'll end up supporting.