Are Natural Resources a Blessing or a Curse For Economic Development?

Questions: Are natural resources a blessing or a curse for economic development? Why do countries such as Norway and the USA achieve more economically sustainable benefits from natural resources compared to countries like Iraq and Nigeria? What policies can countries implement to use their natural resources more beneficially in terms of both economic growth and income distribution? 

Answer

Whether natural resources are a curse or blessing for a country depends on the country's political environment, institutions, policies, and social structure. However, it can be said that a country rich in natural resources faces various difficulties. These challenges cannot be solved without strong institutions and innovative policies. For example,  overconfidence to natural sources is one of the most important problems of the states that the countries rely heavily on income from the export of natural resources. Another problem is the search for unearned income, which is an obstacle to strong institutions and new investments. These problems answer why the USA and Norway are more sustainable in resource management than countries such as Iraq. These countries have overcome these problems with the right policies and strong institutions.

For example, Norway transferred the management of oil wealth to the independent central bank rather than the finance ministry in order to increase the distance between the management of the oil fund and the political process. This keeps natural resource management away from seeking  unearned income. Apart from this, Norway has created large savings pools thanks to these natural resources. But this is the way for Norway. When it comes to Iraq, Iraq needs to make new investments with the revenues it generates. For example, Norway has created strong institutions by producing strong policies for these investments. These policies are:

i) National surveillance and control of all operations at the Norwegian Continental Shelf; (ii) developing new industries on the basis of oil; (iii) respect for existing industrial activities and the protection of nature and the environment; (iv) prohibition against exacerbation of consumable gas (except short test times); and (v) it contributes to the coordination of Norwegian interests in Norway's oil industry, including all appropriate levels of state participation.

Norway transparently transfers the revenues from these rules to its existing fund.

Thus, it can be understood why countries such as Norway and Iraq are different in this natural resource management.

In conclusion, what policies should be applied in order to use countries' natural resources more beneficial in terms of both economic growth and income distribution can be listed as follows:

- Implementing strong fiscal policies to keep money inflows into the country based on natural resources and keep them organized from market shocks.

- Using the income obtained as an investment in the required areas outside the natural resource sector.

- Creating savings funds.

- To set strict standards in natural resource management to protect against  unearned income seeking and corruption.

- Governments are not involved in direct investments but a policy to support the development of the private sector. This policy will save you from corruption and the slowness of institutions.

- To achieve sustainable economic growth by developing strong institutions and promoting entrepreneurship. For example, strong and reliable property rights can promote the development of the financial sector. Institutions are obliged to guarantee and trust these property rights.

- To be transparent in natural resource management by constantly controlling by establishing a control mechanism. This will prevent corruption by increasing accountability.

As a result, it can be said that natural resources with powerful institutions and policies are a blessing, otherwise a trouble.