An Analysis of the Relevance of the Resource Curse to Australia, and Policy Implications

This paper and associated presentation explores the economic phenomenon of the so called ‘resource curse’. We begin by defining the phrase and outlining the main individual ‘curses’ and their causes to give the reader a broad understanding of what is meant by the phrase. This is followed by an in‐depth examination of the transmission mechanisms for the resource curse, the theoretical underpinnings of the resource curse argument, and literature and case study evidence. Our examination of the evidence shows that the ‘curse’ is not uniformly spread among resource rich countries, but applies more in developing countries with weak institutional frameworks than in developed economies. In particular, there is little evidence to show that Australia is afflicted by the resource curse, a finding consistent with the above conclusion. Therefore Australia is free to enjoy the benefits of having resources and to pursue policies of economic growth, and we outline the key policies that will best achieve these objectives. Our key conclusion is that the resource curse itself is a misnomer for the observation, and that rather than being ‘cursed’, nations with resources have to a large extent the capacity to control the economic effects of having the resources. The real problem is not a ‘resource curse’ but rather a ‘resource temptation’ that can result in a ‘curse’. The lesson in this for Australia is that we are not automatically immune from the resource curse, and that constant attention is needed to ensuring that we maintain an institutional framework that ensures continued benefit, without the detriments, that having resources can bring