Emergic: Rajesh Jain's Blog

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The Paradox of Plenty

December 24th, 2005 · No Comments

The Economist writes:

When it comes to wasted wealth, and the problems that bedevil poor countries that are rich in natural resources, especially oil, there is plenty of blame to go around. Economists have long observed that such countries tend to do badly. In a study in 1995, Jeffrey Sachs, now of Columbia University in New York, showed that the resource-rich grow more slowly than other poor countrieseven after such variables as initial per capita income and trade policies are taken into account.

Experts have offered fixes for the economic aspects of this curse of oil for a while. Some governments have used stabilisation policies: when oil prices are high, revenues are set aside; when prices fall, governments use the funds to cushion the blow. A related idea is to park part of the proceeds from resources in offshore funds for the future. In theory, such funds would not only help spread the wealth over several generations, but also help avoid over-appreciation of the local currency. Some countries even disburse some oil revenues directly to every household, thereby ensuring that ordinary folk see tangible benefits.

Tags: Emerging Markets

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