Resource Curse: The Issue

Are natural resources an asset or a curse for the countries that discover them? This debate has been raging for the past twenty years, following initial works by Alan Gelb (1988) and Richard Auty (1990), and a seminal paper by Jeffrey Sachs and Andrew Warner (1995), which gave the curse thesis econometric support based on a broad sample of countries. Since then, an abundant literature has discussed the cases of several notable development failures, and multiplied attempts to empirically find reasons why at times resource abundance has led to poor economic results.

Most of the entries in this literature either ignored completely or only marginally covered the case of the countries of the GCC. This may be due to the dismal state of economic statistics in the GCC in general – a situation that has been repeatedly lamented by the International Monetary Fund and constitutes a major obstacle to the analysis of the region's economies – but probably also to the special challenges that the analysis of economic growth and transformation presents in the case of the Gulf countries. Thus, the paper by Sachs and Warner did not include any of the Arab Gulf countries in its main data sample. A separate table was included with growth rates for six Arab Gulf countries (Iraq and the GCC minus Qatar) for the seventies and eighties – all negative except for Oman.

In one of his earlier writings (Auty 1990), Richard Auty did include a discussion of two GCC countries, namely Saudi Arabia and Bahrain. His book set off from acknowledging the fact that the 1970s increases in oil prices had led to massive investment in industry in some of the oil exporting countries. Nevertheless, “The high expectations for resource-based industrialization were largely unfulfilled, raising important questions about the causes of its failure; its wisdom as a development strategy; and the consequences for both the oil-exporting countries and key sectors of the global manufacturing industry” (Auty 1990, 3).

When discussing the deployment of the oil rent for industrialization, Auty's assessment of the Saudi and Bahraini experience was not in fact negative: “The autocratic character of the Arabian Gulf regimes provided the long-term horizon and insulation of government elites from short-term political pressures which an effective absorption required.” “…The character of the regime and the scale of the windfall were symbiotic.” “Prudent economic management during the two oil booms sought to maintain fiscal balance, restrain inflation and sustain currency convertibility.”(Auty 1990, 111)