Revisiting the Natural Resource Curse Hypothesis Using Dynamic Simulation

Document Type : Original Article

Author

Research Assistant Professor and Graduate Faculty, Faculty of Agricultural, Consumer, and Environmental Sciences, New Mexico State University, Las Cruces, New Mexico, USA

Abstract

The negative correlation between economic growth and the natural resources endowment is called the "curse of resources" or "paradox of plenty" in the development economics literature. So far, many econometric studies have tested this hypothesis, but without any decisive conclusion. The main reason for this is due to the dynamic complexity of the problem. This paper presents a theoretical system dynamics model to address the fundamental question of whether natural resources endowment is a "curse" or "blessings". The model's simulation results reveal that the probability of natural resource wealth hindering economic growth, thus undermining socioeconomic development, is negligible. This probability is stronger in the short term rather than in the long run. Further, weak social and political institutions can increase the adverse effects of natural resource wealth. It is also shown that, similar to ordinary goods or personal income, revenues from resource exports follow the law of diminishing marginal utility.

Keywords

References

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