Economic Diversification to Reduce Natural Resource Dependency in the Literature

Abstract

The resource curse refers to a negative correlation between natural resource dependence and economic growth. This phenomenon is labelled ‘the paradox of plenty’. It was previously viewed that the size and variety of natural resources resulted in a rapid development. However, this conventional wisdom has been challenged, with arguments arising to address the disadvantages of dependence on natural resources. This chapter outlines the problem of natural resource dependency along with providing relevant theories in relation to economic diversification to reduce natural resource dependency. A summary of the previous studies surrounding the relationship between private sector development, public sector privatisation, taxation and the reduction of natural resource dependency is provided. Previous studies have approached the problem of natural resource dependency in various ways. The majority of empirical studies were focused on measuring the relationship between natural resource abundance and economic growth or the importance of institutional quality in overcoming natural resource dependency. This reviewed chapter is related to diversification strategies concerned with the importance of diversified factors of private sector development, and/or public sector development, in reducing the danger of resource curse in resource rich countries.