Which mechanism is commonly linked to the resource curse?

Which mechanism is commonly linked to the resource curse?

• A. Diversification of the economy
• B. Balanced growth across sectors
• C. Strong corruption and rent-seeking, volatility, Dutch disease
• D. Immediate improvement in health outcomes

Answer: (C)

Resource wealth often distorts governance and macro stability, and that is the mechanism commonly linked to the resource curse. When a country relies heavily on natural resource exports, windfall revenues can fuel corruption and rent-seeking, as actors try to capture a larger share of the gains. This can push public spending toward the resource sector and away from broader development goals, reducing accountability and leading to misallocation of investment. A boom from high commodity prices also tends to appreciate the real exchange rate, making other tradable sectors like manufacturing and agriculture less competitive—a phenomenon known as Dutch disease. Additionally, dependence on volatile commodity prices creates fiscal and investment volatility, resulting in unstable budgets. Together, these dynamics explain why resource-rich economies can struggle to diversify and sustain growth. Health improvements are not an inherent outcome of a resource boom and may be uneven or delayed if governance is weak. Diversifying the economy and pursuing balanced growth across sectors are strategies that help counteract these problems.

Resource wealth often distorts governance and macro stability, and that is the mechanism commonly linked to the resource curse. When a country relies heavily on natural resource exports, windfall revenues can fuel corruption and rent-seeking, as actors try to capture a larger share of the gains. This can push public spending toward the resource sector and away from broader development goals, reducing accountability and leading to misallocation of investment. A boom from high commodity prices also tends to appreciate the real exchange rate, making other tradable sectors like manufacturing and agriculture less competitive—a phenomenon known as Dutch disease. Additionally, dependence on volatile commodity prices creates fiscal and investment volatility, resulting in unstable budgets. Together, these dynamics explain why resource-rich economies can struggle to diversify and sustain growth.

Health improvements are not an inherent outcome of a resource boom and may be uneven or delayed if governance is weak. Diversifying the economy and pursuing balanced growth across sectors are strategies that help counteract these problems.