Solving the resources curse

Why are developing countries with the most resources often the poorest? Flinders economist Dr Thanh Le is creating a new understanding of the so-called ‘Resources Curse’.

Dr Thanh Le has spent years examining why some resource-rich countries remain poor, despite their natural assets and also the impact of over-reliance on exploiting natural resources to fuel economic growth.

“The Resources Curse story has puzzled economists for decades,” Dr Le said.

“Some of the poorest nations on Earth, such as nations in Sub-Saharan Africa and South America have fabulous natural resources, while other nations with very few natural resources, such as Singapore and Japan, have developed strong and wealthy economies.

“Several studies indicate that countries which are resource rich must have strong and effective government and governance if they are to prosper. Without that, large quantities of resources are wasted in wars and security measures to try to protect resources. They waste time, effort, money and worst of all, lives in fighting each other or defending the resources, rather than developing human capital and productivity alongside a measured use of the resources.”

As Vice-President of the International Society of Vietnam Economists, he has helped raise awareness of sound economic policy both in Vietnam and abroad. His work also clearly has implications for his adopted home, Australia.

“Our research adds to that synthesis by emphasizing that having a strong innovative sector is the key to turn resources from a curse into blessing as technological improvement is the engine of growth,” Dr Le said.

“This has significant implications for policy in developed, as well as developing countries. Our latest research modelled the long run perspective of an economy reliant on non-renewable resources compared with an economy reliant on renewable resources.

“When you model the long-term wealth of a nation, they gain little by digging up a resource and selling it. Selling off a finite product simply diminishes an asset that the country owns, providing little net gain in the long term.

“While there might be some short-term growth advantages to structuring an economy around exploitation of natural resources, economies which are structured around renewable resources can continue to top up the stock that they have to sell long into the future, so they have a distinct long-term advantage.”

Dr Le’s research is making a significant contribution to international economic policy development – providing insights which can be valuable not just in Vietnam, but in resource-reliant countries like Australia and developing countries looking to strengthen their economic resilience.

Recently there was a controversy in Vietnam after a Taiwanese company operating a steelwork in Vietnam was found to have killed a large swathe of marine life after years of dumping pollutants into a nearby waterway, Dr Le said.

“Many local fishermen lost their livelihood and there was a commentary that because Vietnam was a developing country, it had to choose between fish and steel, because you can’t have both. Our next research project will look at that. We need to find a sustainable way to have both fish and steel together in developing economies.”