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The Presource Curse
Article

The Presource Curse

Oil discoveries can lead first to jubilation then to economic jeopardy

James Cust and David Mihalyi
IMF, 2017
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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • Concrete Examples

Recommendation

Contrary to expectations, growth in some economies falls after an oil or gas discovery. Economists James Cust and David Mihalyi explore the reasons for such failures and outline what officials can do to prevent them. getAbstract recommends this notable research to bankers and investors considering doing business in resource-rich countries that may lack the political and governing vigor to make those discoveries a blessing and not a curse.

Summary

Countries with substantial oil and gas deposits often experience slower economic growth and more social problems than those without such resources. Experts call the trend the “resource curse.” But a “presource curse” refers to the weak political structures, poor planning and feeble development that can make nations immune to the benefits of a natural resource find.

Ghana provides a perfect example of the presource curse. Between 2003 and 2013, the country averaged a healthy 7% rate of growth per year. Then two major oil discoveries between...

About the Authors

James Cust is an economist at the World Bank. David Mihalyi is an economist at the Natural Resource Governance Institute.

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