Interview with Arvind Subramanian and Xavier Sala-i-Martin: Tackling the natural resource curse: An illustration from Nigeria

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IMF Survey spoke with them.

IMF SURVEY: Why is the natural resource curse occupying the attention of policymakers?

SUBRAMANIAN: This issue is topical and pressing. The natural resource curse was the subject of a recent workshop organized by George Soros's Open Society Institute and held at Columbia University, where a group of economists, political scientists, lawyers, policymakers, and representatives of civil society gathered to discuss ways of overcoming it.

One outcome of the workshop was to commission a project that would involve the compilation of a handbook of best practice. This handbook would cover the entire cycle of resource exploitation-from exploration to government expenditure of the revenues derived from the resource. It would provide guidance to governments on how to proceed with the exploitation of a natural resource in a manner that maximizes the benefits derived from it.

There was a shared sense at the workshop that any effort to address the curse should focus equally on the role played by foreign companies that helped exploit the resource. These companies should be subject to best practice in terms of contracting, procurement, and the transparency of their operations.

The resource curse is also in the news because of a number of other developments. The World Bank, for example, is carrying out a review of its own project lending policies with regard to extractive industries. Civil society groups have taken strong positions on this, arguing, for example, that the Bank should cease lending to extractive industries in developing countries. Oil is also being discovered in a number of important geostrategic locations, such as the former Soviet republics. And, of course, recent events in Iraq have refocused attention on the role of oil in Middle Eastern countries.

IMF SURVEY: Why are some countries subject to the natural resource curse and some not? How does it manifest itself?

SALA-I-MARTIN: Based on cross-country evidence, we found that the natural resource curse is intrinsic to most countries with oil or minerals-that is, owning such resources depresses long-run growth. But countries that are rich in other natural resources, such as agricultural products and commodities, are not subject to the curse. Also, and more important, the curse works by destroying domestic economic and political institutions. The presence of oil or minerals gives rise to rent seeking and corruption, which adversely affect the climate for...

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