7 - Concluding comments

Summary

The modern resource curse literature can be traced back to the 1970s, when it concerned itself mainly with macroeconomic problems faced by economies that had received a windfall income from a commodity or oil price boom. This literature, known as the “Dutch disease” literature, was not necessarily focused on developing countries. Rather, the emphasis was on the inflationary pressures brought on by greater spending power, and real exchange rate appreciation, including possibilities of nominal exchange rate overshooting. There was also the spectre of unemployment increasing if there was a strong wealth effect on money demand from the resource windfall. There would be a change in the economy’s steady-state equilibrium composition of output, away from traded goods to non- traded goods, on account of the real exchange rate appreciation. In practice, it meant some deindustrialization. The analytical models underlying these processes can be found in the literature published mainly in the 1980s, as for example, in Neary and van Wijnbergen (1986) and Murshed (1997: chap. 6).

The commodity (mainly oil) price booms of the 1970s indirectly contributed to the developing country debt crisis in Latin America and elsewhere in the 1980s. Due to the lack of domestic absorptive capacity in many capital-surplus oil-rich economies, some of the oil rents or petrodollars were invested in international capital markets. This played a part in increased lending by Western commercial banks to other developing countries, culminated in the developing country debt crisis of the 1980s when Mexico defaulted on servicing its debt in 1982 (Ffrench-Davis & Devlin 1995).

Initially, the Dutch disease literature had developed economies such as the Netherlands, Norway and the United Kingdom in mind. Later there were extensions of Dutch disease to developing countries, including the effects of large-scale guest worker remittances (see, for example, Lartey, Mandelman & Acosta 2012), as well as the effects of foreign aid (for example, Fielding & Gibson 201 3): unrequited transfers that worked very much like resource windfalls. The term “resource curse” was popularized following Auty (1993) to describe the economic failures of resource- rich economies.