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Fiscal policy: Unravelling the productivity puzzle


The natural resource curse

One would expect that a country that has an abundant access to natural resources would be rich and that its population would experience an exceptionally high standard of living. Chris Jones explores why, very often, this is not the case

Figure 1 GDP per capita, Democratic Republic of Congo

The Democratic Republic of Congo (DRC) is one of the world’s poorest countries. It is about the size of Western Europe and according to the World Bank in 2022, nearly 60% of Congolese, around 60 million people, lived on less than $2.15 a day — about one in six people lives in extreme poverty. Yet the country is rich in natural resources such as cobalt and lithium, which are the key components used in batteries.This could support the world’s transition away from fossil fuels. On top of this, the country has an abundance of arable land, immense biodiversity, and the world’s second-largest rainforest.

The answer — the natural resource curse. Sometimes known as the poverty paradox, this is a phenomenon that often occurs in countries with an abundance of natural resources. Researchers began to notice in the 1950s and 1960s (when measuring the size of the economy via GDP) that many economies rich in natural resources were not growing as fast as other countries of comparative size, but with less reliance on natural resources. As more data became available, a 1995 study by Sachs & Warner found a strong correlation between natural resource abundance and poor economic growth.

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Fiscal policy: Unravelling the productivity puzzle

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