Resource Curse Hypothesis

Since the announcement, in 2007, of the pre-salt oil layer by the Brazilian Oil Company (Petrobras), there has been a lot of optimism about Brazil’s future economic development. Even before any extraction has been started off, pre-salt revenues have already been legally addressed to fund country-wide educational and health systems. Nevertheless, on one hand, the country formally subscribes to international negotiations on climate change to curb fossil fuel emissions; on the other hand, even though claiming to bear a clean energy matrix, it falls back on its newest oil reserves to support its future economic development. Nowadays, though, many leading economic countries have heavily invested in renewable rather than in fossil fuel energy sources. Moreover, alternative fossil options, such as shale gas, have become economically and technologically feasible. So, in this international context, is the ownership of a large oil reserve a blessing or a curse? The answer is given by a non-renewable resource multi-period model (Hotelling model). By drawing an optimal depletion price path along which extraction revenues would not dramatically rise or fall in response to a non-optimal programme, its objective is to prevent the “Dutch disease” and distortions in the oil volume to be eventually shared between the pre-salt reserve owner (government) and its exploiting companies. If market prices are higher than the optimal ones, the primary commodity is likely to be over-depleted and largely exported, thereby causing the exchange rate to over-appreciate and the demand for foreign, instead of domestic, goods to increase. Nonetheless, results show that optimal prices, quantities and economic lifetime of the resource critically rely on current estimates for the existing stock, oil prices and interest rates.

This article criticizes the resource curse thesis for neglecting the interplay of
international factors and domestic politics, that is the political settlement, in
explaining industrial performance in a resource-dependent society – Trinidad and
Tobago. Using political settlement analysis, secondary as well as interview data,
it examines the dynamics at the macro and sectoral levels in iron and steel and
telecommunications in Trinidad and Tobago. The historical evidence reveals that
anti-colonial mobilizations spurred critical public investments in developmental
institutions and industrial projects responsible for improving the country’s
productive base and technological capability in the post- Black Power period.
These investments were bolstered by a favorable geopolitical climate and the 1973
commodity boom. Sectoral case studies reveal how shifts in the country’s political
settlement affected late-industrializing accumulation technological capabilities.
Hereafter, neoliberal policies facilitated an increased role for external actors in
economic policy and ethnic-based clientelism within the political economy.