The Long Why

Why Are Resource-Rich Countries Often Poor? The Resource Curse Explained

Geography & Fate · Published 2026-10-22 · Sources checked 2026-10-22

Short answer: because a resource windfall does not build an economy by itself, and it can change incentives in ways that work against growth. In a 1995 study, Jeffrey Sachs and Andrew Warner found that countries with a high ratio of natural resource exports to GDP in 1971 tended to grow slowly over 1971 to 1989, even after controlling for other factors. Later research disagrees about how general that pattern is. Surveys conclude that either outcome is possible, and that institutions, meaning the rules and organisations that decide who gets the money, shape which one a country gets.

The idea is called the "resource curse" or, in a milder form, the "paradox of plenty". This page explains where the idea comes from, the mechanisms economists propose, the evidence that challenges it, and what official World Bank figures show for Norway, Botswana, Nigeria, Saudi Arabia and Venezuela. It describes research findings, not the character of any country or its people.

The puzzle: why would having more be worse?

It seems obvious that a country sitting on oil, gas, diamonds or copper should be richer than one with nothing to sell. A resource can be exported for foreign currency, taxed to pay for schools and roads, or used to attract investment. Yet economists noticed that rich resource endowments did not reliably turn into rich economies.

Sachs and Warner, in NBER Working Paper 5398 (December 1995), described this as "one of the surprising features of modern economic growth": economies with abundant natural resources had tended to grow less rapidly than resource-scarce ones. They measured abundance as the ratio of natural resource exports to GDP in 1971 and compared it with growth over 1971 to 1989. The negative relationship held after they controlled for initial per capita income, trade policy, government efficiency, investment rates and other variables. They then studied possible pathways, looking at how resource endowments related to trade policy, bureaucratic efficiency and other determinants of growth, and offered a simple theoretical model of endogenous growth that could help explain the pattern. A later version appeared in the Journal of Development Economics in 1999 as "The Big Rush, Natural Resource Booms and Growth", according to NBER's record of published versions.

The main mechanisms economists propose

No single explanation is accepted by everyone. Frederick van der Ploeg's 2011 survey in the Journal of Economic Literature "Natural Resources: Curse or Blessing?", groups the hypotheses into a few families, summarised here.

1. A strong currency and shrinking industry (Dutch disease)

Van der Ploeg's survey lists the hypothesis that a resource bonanza induces appreciation of the real exchange rate, deindustrialisation and bad growth prospects. In plain terms: when large export earnings pour in, the country's currency and local prices rise, which can make factories and farms that sell abroad less competitive. If those sectors are where learning and productivity gains happen, the economy can lose something valuable even as national income rises. A formal analysis of a booming sector and de-industrialisation in a small open economy was published by W. Max Corden and J. Peter Neary in The Economic Journal in 1982.

2. Rent seeking, corruption and conflict

The same survey lists the hypothesis that a resource boom reinforces rent grabbing and civil conflict, especially if institutions are bad, and induces corruption especially in non-democratic countries. "Rent" here means income that comes from owning or controlling a scarce asset rather than from producing something. When a large share of national income comes from a few wells or mines, competition can shift from making things to controlling who receives the revenue.

3. Bad policies kept in place

Van der Ploeg also lists the view that a boom keeps bad policies in place. The argument is that easy revenue can reduce the pressure to reform trade policy or public administration. Sachs and Warner's own investigation of trade policy and bureaucratic efficiency as pathways belongs to this family.

4. Difficulty turning a depleting asset into lasting wealth

The survey notes that resource-rich developing economies seem unable to successfully convert their depleting exhaustible resources into other productive assets. An oil field is a stock that runs down. Unless some of the income is saved or invested in things that last, such as education, infrastructure or financial assets, the wealth disappears with the resource.

5. Volatility

Van der Ploeg finds that adverse effects are more severe in volatile countries. Commodity incomes rise and fall with world markets, which makes budgeting difficult. The Norwegian fund described below was set up, according to its manager, to shield the economy from ups and downs in oil revenue.

Institutions: the factor that keeps coming up

Many studies point to institutional quality as the switch that decides the outcome. Van der Ploeg's survey states that the adverse effects are more severe with bad institutions, lack of rule of law, corruption, presidential democracies and underdeveloped financial systems. The title of a 2006 Economic Journal paper by Halvor Mehlum, Karl Moene and Ragnar Torvik states the same idea: "Institutions and the Resource Curse".

Xavier Sala-i-Martin and Arvind Subramanian, in NBER Working Paper 9804 (June 2003), found that some natural resources, oil and minerals in particular, exert a negative and nonlinear impact on growth through their deleterious impact on institutional quality. They describe this result as very robust. Applying it to Nigeria, they argue that waste and corruption from oil, rather than Dutch disease, had been responsible for that country's poor long-run economic performance. They also proposed that oil revenues be distributed directly to the public, a policy idea that remains a proposal and is not endorsed here.

Notice what this does to the original claim. If institutions are the channel, resources are not a curse by themselves. They are an amplifier: they raise the stakes of whatever rules a country already has.

What World Bank data show for five countries

The World Bank publishes "total natural resources rents" as a share of GDP. It is defined as the sum of oil rents, natural gas rents, coal rents, mineral rents and forest rents, estimated by World Bank staff. It is a useful rough gauge of how much of an economy's output comes from extracting resources, though one year's figure is only a snapshot. The table pairs the latest rent figure available for each country with income per person.

CountryResource rents, % of GDP (latest year available)GDP per capita, 2024 (current US$)
Norway10.05 (2021)89,889
Saudi Arabia25.57 (2021)35,528
Botswana1.04 (2021)7,650
Venezuela, RB11.85 (2014)4,244
Nigeria8.55 (2021)1,084

Source: World Bank, World Development Indicators, indicators NY.GDP.TOTL.RT.ZS and NY.GDP.PCAP.CD (API data updated 8 October 2026). Rounded to the figures shown. Rents are not reported for all years for every country.

Two things stand out. First, resource rents say little by themselves about income: the countries with the largest rent shares are not at the top or the bottom of the income column. Second, the rents move a lot from year to year. Saudi Arabia's reported rents were 50.20% of GDP in 2011 and 17.32% in 2020. Norway's ranged from 3.87% in 2016 to 10.05% in 2021 within 2010 to 2021, and Nigeria's from 17.55% in 2011 to 4.55% in 2015. That swing is the volatility problem in numbers.

A snapshot of income does not show direction, so the next table shows how income per person changed. It uses GDP per capita in constant 2015 US dollars, which removes the effect of price changes. The percentage changes are our own calculation from the World Bank values, not figures published by the World Bank.

Country198020002024Change 1980 to 2024Change 2000 to 2024
Norway40,14167,61183,487+108%+24%
Botswana2,0035,0636,952+247%+37%
Nigeria2,1771,4222,325+7%+64%
Saudi Arabia58,09422,24825,123-57%+13%
Venezuela, RB4,6383,7321,501-68%-60%

Source: World Bank, World Development Indicators, indicator NY.GDP.PCAP.KD (GDP per capita, constant 2015 US$; data updated 8 October 2026). Percentage changes are our own calculation, rounded to whole numbers.

The picture is mixed, which is exactly the point. Over 1980 to 2024, Norway's income per person roughly doubled, Botswana's more than tripled, Nigeria's rose by about 7% and the figures for Saudi Arabia and Venezuela fell. But the starting year matters a great deal. Measured from 2000, Saudi Arabia and Nigeria rose, while Venezuela still fell. A single start date can make a country look like a success or a failure, so careful studies use many years and many countries rather than a handful of cases.

How Norway built a buffer

Norway's operator of its sovereign fund describes the design on its website. Oil was discovered off Norway in 1969, and it was decided early on that oil and gas revenue should be used cautiously to avoid imbalances in the economy. The parliament passed legislation in 1990 creating what is now the Government Pension Fund Global, and the first money was deposited in 1996. The fund must invest only abroad. It was set up to shield the economy from ups and downs in oil revenue and to serve as a financial reserve and long-term savings plan.

The same page says the government can spend only a small part of the fund each year, though that still amounts to almost 20 percent of the government budget. Deposits from oil and gas account for less than half the value of the fund; most of it has been earned from investments. The fund's value exceeded 20,000 billion kroner in 2024, and it holds almost 1.5 percent of all shares in the world's listed companies.

This is one answer to the volatility and depletion problems: save abroad, spend a rule-bound portion, and keep the swings in oil income away from the domestic economy. Whether other countries can copy it depends on the institutional conditions discussed above. In the World Bank table, Norway's resource rents are well below Saudi Arabia's, so the outcome is not explained by the size of rents alone.

What is still debated

What the evidence cannot tell you

Common questions

Is the resource curse real?

It is a real pattern in some data and a contested one in the literature. Sachs and Warner found a negative link between resource exports and growth over 1971 to 1989, while van der Ploeg's later survey concludes that either a curse or a blessing is possible depending on circumstances such as institutions.

What is Dutch disease?

It is the hypothesis, listed in van der Ploeg's survey, that a resource bonanza raises the real exchange rate and leads to deindustrialisation and weaker growth prospects, because other export sectors become less competitive.

Why did Norway do well with oil?

Norway's fund operator says oil revenue was meant to be used cautiously, and that the fund, created by 1990 legislation with first deposits in 1996, invests abroad and shields the economy from swings in oil revenue. The data show Norway's GDP per capita in constant 2015 dollars roughly doubled from 1980 to 2024 (our calculation). The studies above point to institutions as a key part of any full explanation.

Is Nigeria's experience typical?

Sala-i-Martin and Subramanian use Nigeria as an illustration of their institutional finding and argue that waste and corruption from oil, rather than Dutch disease, explain its poor long-run performance. Other countries can differ, and the study is one account among several in a debated field.

Are all natural resources equally risky?

Not according to the 2003 NBER paper, which finds the negative effect for oil and minerals in particular and says it works through institutional quality. The paper describes the effect as nonlinear.

Can a country avoid the curse?

Van der Ploeg's survey offers fiscal rules for managing windfalls, and Norway's fund shows one rule-based design. The literature does not guarantee success, and results depend on institutions that take years to build.

Sources and how to check