The Reinforcement of the Resource Curse by Developed Nations

I mentioned in class the idea that oil refineries produce more high-skilled jobs than collecting crude oil, but here I will develop that idea into an argument that relates both the conflict and economic parts of the resource curse.

I think that the resource curse explains the violent conflict in some countries very well, but misses in others. Specifically, it seems like it takes a widely adapted definition of violent conflict to make the theory work for the more developed nations. I think that natural resource-rich countries with significant downstream industries have less violent conflict than natural resource-rich countries without downstream industries. I think the violence that the countries with downstream industries participate in is outside their borders, while in the other natural resource-rich countries violent conflict takes place within state borders. Further, I think it is not the dependence on a resource that hurts a country, but the dependence on raw materials as a large share of total exports.

For example, depending on crude oil creates an unstable economy, as Ross points out that fluctuations in either supply or demand can change prices enough to create a dire economic situation. Add in an oil refinery downstream and a country can now export any of the many products made from crude oil. This diversification allows for a more stable economy, and one with higher quality products. The United States rich in natural resources, but does not experience as much violent conflict within its borders as many other natural resource rich countries. I think the conflict is in the countries that export raw materials as a large share of their exports.

One of the problems of the countries exhibiting violent conflict is their trade relationship with their buyers. The countries buying the raw materials have an incentive to add value to the natural resources domestically. This means the developed nations have an advantage if they can encourage the sellers not to invest in downstream industry. The way the developed countries can do this is through import tariffs-taxing any value-added imports more than raw material imports. But if the countries using import tariffs on value added goods are the same countries promoting global economic development, they are basically working against their own goals. What can the countries with the natural resources do? They can implement export tariffs such that it is more expensive to export raw materials than it is value added materials. The problem is this plan discourages foreign investment, which is often needed to establish the industries needed to add value to the natural resources. The foreign investment is discouraged because the investors, usually developed countries, can go to the next country selling raw materials.

Therefore I think much of the foreign influence from developed countries causes the conflict in the natural resource-rich countries that have no significant way to add value to their product. This is because the developed countries prevent the natural resource-rich countries from diversifying, and make economic growth harder to come by. The bad or even negative economic growth is associated with more violent conflict according to Ross. In my opinion, the result of this situation is that a country like the United States encourages these countries to export raw materials while sending many of them aid aimed at economic development at the same time. I think it is better to use economic tools, in addition to cash and other aid packages, to allow countries to have access to fair markets.

These international trade, natural resource, and violent conflict forces are much too complicated to be figured out in this blog. However, I think it is apparent to see the hypocrisy of sending money to a country to support its economic development, while keeping that country from the incentive to establish value-adding industries. I think those tools would work better together.