Paul Collier and Development Traps

Overcoming the Natural Resource Trap

This is a crucial issue for many countries who are blessed with a strong endowment of natural resources.

The natural resource trap or resource curse can come about for a variety of reasons:

• Risk of political conflict and corruption / conflict / land grabs
• Vulnerability to changes in world prices which causes high levels of macro volatility
• Danger of over-rapid extraction of finite and renewable resources
• Rising prices can lead to a currency appreciation – damaging domestic industries

Professor Paul Collier has argued:

“Although large deposits of key resources such as oil would usually be considered a blessing for the development prospects of a country, it often turns out to be a ‘resource curse’”

Which strategies might help to overcome these problems?

1. Better government – including more transparency & accountability to tax payers
2. Stabilisation Fund / Sovereign Wealth Fund – e.g. to fund human capital and critical infrastructure
3. Higher taxes of natural resource profits (extracting resource rents)
4. Diversification – investment in processing and manufacturing – giving higher value added