THE RESOURCE CURSE: Iran and Norway in Focus

By Nima Nasrollahi Shahri

Studies signify a meaningful reverse correlation between resource abundance and GDP growth leading to a paradox termed “resource curse”[1]. The paradox is that countries which should be better-off as a result of resource availability and big revenues from the export of these resources, on average, function economically worse. Terry Lynn Karl in his book entitled “paradox of the plenty” [2]discusses how oil revenues fail to bring about the much expected prosperity to the producing countries with a special focus on Venezuela. The question whether this strong correlation is reflective of a causal link or not is very difficult to address[3]. However, Ragnar Torvik  (2009) concludes based on the literature he presents that:

‘In the last 40 years there is a negative robust correlation between the share of resource exports in GDP and economic growth. This correlation remains even when many other factors are controlled for.’ [4]

This robustness is indicative of a probable causal link particularly given that the correlation remains when all other factors are controlled for. Aslaksen (2006) also points to the correlation between resource riches and corruption which is merely one of the examples of the negative influences of resource riches on a country’s political economy.[5] Michael L. Ross (2001) discusses the political facet of abundant oil resources; He argues that there exists extensive evidence that oil can hinder democracy[6]. A very intriguing question regarding resource riches is how it touches different countries in oddly varying manners. Not all the countries have been economically affected unfavorably after discoveries of natural resource and for every Venezuela, Nigeria, Iraq or Iran there exists a Norway, Canada, UK, Indonesia, Chile or Botswana. In some studies special attention has been given to how a resource curse can possibly be avoided.

Ragnar Torvik (2009) does an excellent job of pinning down the differences between those countries which have managed to escape the curse and those which were affected by it. He summarizes the differences under six headings:

 ‘(i) saving of resource income ;(ii) presidentialism versus parliamentarism;(iii) institutional quality;(iv) type of resources; (v) offshore versus onshore oil; and(vi) early versus late industrialization.’[7]

The differences Torvik refers to appear authentic and benefit from a huge literature support yet vaguely abstract since they do not follow from a concrete comparison between two or more countries and are only supported via selective evidence from countries of both categories.

In this study the matter is taken to a different and more concrete level through a comparative historical and geo-political analysis of oil and gas sectors in two countries which epitomize poor and skilful resource management. Iran, having had an economic growth rate of-1% in the last forty years[8], has been chosen but for the personal acquaintance the author has with the country and that it shares many similarities with other countries which have proved incapable of efficient resource management.

Stevens (2003) points out that there are very few exceptions of countries that have not suffered from a resource curse and Dutch disease and that the reasons are not yet fully understood[9]. However, there have been a multitude of studies that indicate Norway has been among the lucky few.

Norway, claimed by Gylfasonis (2001)[10] and demonstrated by Larsen ( 2004) [11]to be a country which has escaped the resource curse,  has even benefited from its riches to catch up  with and  even forge ahead its neighbours economically and carries many important lessons for countries which face the possibility of having to deal with a resource curse due to new hydrocarbon discoveries.

NUTSHELL:

This is the first in a series of four articles in which Nima outlines the case for a comparison between the countries that have been able to escape the resource curse and the less fortunate countries which are mired in this paradox of plenty. In his examination of 'water, water everywhere yet none to drink', Nima will undertake a historical study of the Iranian and Norwegian petroleum sectors with the hope of creating more understanding of the gulf that exists between nations that share their contemporary situations. Also, vital lessons will be learned and possibly adopted to shape positive discussions about how to get nations out of the clutches of the resource curse. For more information on this article and to view Nima's professional profile, click here -->

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[1]   J.D.,Sachs and A.M. Warner, The curse of natural resources, 45 EUR ECON REV 827 (2001).

[2] K., Terry Lynn, The Paradox of Plenty : Oil Booms and Petro-states Studies in International Political Economy, (1997).

[3]  R., Torvik, 2009. Why do some resource-abundant countries succeed while others do not?, 25(2) OXFORD REV ECON POL  241 (2009). 

[4] Id

[5] S., Aslaksen & R. Torvik,.A Theory of Civil Conflict and Democracy in Rentier States, 108(4) SCAND J ECON 571 (2006).

[6] M., Ross, Does oil hinder democracy, 53(3) WORLD POLIT 325 (April 2001).

[7] See Torvik, Supra note 7 at 6.

[8] T. Gylfason, Natural resources, education, and economic development, 45 EUR ECON REV  847 (2001).

[9]  P. Stevens, Resource impact_ Curse or blessing? A literature survey,25 March 2003  at:  //www.dundee.ac.uk/cepmlp/journal/html/Vol13/article13-14.pdf( Last visited on 15/01/2010)

[10] See Gylfason, Supra note 11 at 8.

[11] R.,  Larsen E.,Are Rich Countries Immune to the Resource Curse? Evidence from Norway’s Management of Its Oil Riches, , 30 (2) RESOUR POLICY 75(2005).