Resource Curse Comes to N. Korea

Resource Curse Comes to N. Korea

So what exactly is the resource curse? In the 1950s, Argentinean economist Raul Prebisch argued that commodities were subject to a long-term secular decline in their terms of trade relative to manufactures. Post-colonial resource producers would be consigned to be the “hewers of wood and drawers of water” for the rich industrialized countries. Whether this hypothesis is correct is an empirical matter, and a quick glance at the gas pump, much less advanced statistical analysis, suggests that it probably is not.  Another possibility is that it is not the secular trend in prices that counts, it is the instability of export revenues that is the culprit, discouraging saving and investment, complicating macroeconomic policy management and generally encouraging a boom-bust mentality. Again, the statistical support for the proposition has been found wanting. Yet another possibility is the so-called the “Dutch disease” phenomenon. Named for the discovery of natural gas in the North Sea off the coast of the Netherlands in the 1970s, Dutch disease refers to the tendency of the real exchange rate to appreciate following the discovery of a valuable commodity or during commodity price booms rendering traditional industries internationally uncompetitive.  While Dutch disease complicates exchange rate management, it is unlikely to represent the whole explanation for the underperformance of commodity exporters, it is probably not the primary channel through which natural resource abundance could negatively affect economic performance. Rather, the primary channel through which resource endowments affect economic performance is through its impact on institutions and political development.

 

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