Question

What is meant by the “resource curse”? How do natural resources lead to corruption? Explain.

Answer 1

Resource curse:

Resource curse is a suituation where the country focuses or have a abandance of non renewable natural resources which makes a stable economic growth and there won't be investment in any other sectors particularly.

More will be invested in particular fields like mining or oils. This will result in dependent over the price of commodities by tha country and the overall GDP becomes extremely evaporative.

How corrupted is natural resources?

There is a growing body of proof that natural resources can be a curse rather than a blessing. Countries furnished with natural resources, on average, grow more slowly than countries without such resources naturally.

What is commonly referred to as the ‘resource curse’ has been linked by research both to rent-seeking behaviour.
Recent analysis emphasises the effects of rented resources on corruption. One argument is that natural resource rents lead to rent-seeking, or the socially costly chasing of rents. Though rent-seeking and corruption are not one and the same, some forms of rent-seeking do pay way for corruption.
The main problem is not that there is rivalry for rents, but that the skills, time and energy individuals use to compete for resources could have other uses. In oil rich countries, skilled individuals can gain more from becoming oil bureaucrats than from starting a business in another field. Where resource rents are high and institutional quality is low, and entrepreneurs will choose to become rent-seekers other than seeking other jobs.
If there are externalities in production, an increase in resource rents will attract so many entrepreneurs to shift into rentseeking that total national income will be declined. Rentseeking can therefore be said to make the size of the cake smaller, or an economy worse even though it has received an additional income through natural resources.