The Curse Of Natural Resources In The Transition Economies

The curse of natural resources is a well-documented phenomenon in developing countries. Economies that are richly endowed with natural resources tend to grow slowly. Among the transition economies of the former " Eastern Bloc " , a similar pattern can be observed. This paper shows that a large part of the variation in growth rates among the transition economies can be attributed to the curse of natural resources. After controlling for numerous other factors, there is still a strong negative correlation between natural resource abundance and economic growth. Among the transition economies the prime reason for the curse of natural resource is corruption. Other reasons for the curse of natural resources may be Dutch disease effect and a neglect of education. The curse of natural resources is a well-documented phenomenon. Numerous researches, found a significant negative correlation between natural resource abundance and economic growth. This finding seemed puzzling at first, because classical economic theory would predict that abundant natural resources should be good for the economy. As a matter of fact, economic theory in the 19 th and early 20 th century often regarded land as an important production factor, and land is a natural resource. In his famous " Essay on the Principle of Population " , Thomas Malthus argued in 1798 that since land was a limited resource that does not grow, all other production factors would eventually run into diminishing returns, and thus economic growth would stop. Thus, a classical economist would expect that if one country has more natural resources than another otherwise similar country, the former would enjoy higher output per worker. Unless all countries in the world are in a steady state, this would translate into higher growth rates in countries that are relatively abundant in natural resources. Empirical studies have shown that reality contradicted theory: The richest countries today are in general rather poorly endowed with natural resources. Among them are the Western European countries, whose economies are based on manufacturing and services, because they have little natural resources. Another example is the experience of several Asian economies, notably Japan, South Korea and Taiwan, which have shown that natural resources are not a necessary condition for rapid and sustained economic growth. None of the Asian tiger economies possesses significant natural resource endowments, but their average growth rates during the second half of the twentieth century have been higher than anywhere else in the …