Rethinking the Resource Curse: A Review Essay on the Politics of Oil Investments

Abstract

Oil, Dollars, Debt, and Crises: The Global Curse of Black Gold. By Mahmoud A. El-Gamal, Amy Myers Jaffe. Cambridge: Cambridge University Press, 2010. 217 pp., $26.00 paperback (ISBN-13: 978-0-521-72070-0). Foreign Investment and Political Regimes: The Oil Sector in Azerbaijan, Russia, and Norway. By Oksan Bayulgen. Cambridge: Cambridge University Press, 2010. 274 pp., $72.00 hardcover (ISBN-13: 978-0-521-42588-9). From Windfall to Curse? Oil and Industrialization in Venezuela, 1920 to the Present. By Jonathan Di John. University Park, PA: Penn State Press, 2009. 339 pp., $52.00 hardcover (ISBN-13: 978-0-271-03553-6). In the global competition to secure energy sources, oil fields attract lucrative foreign investment. Yet the promise of prosperity from oil wealth is rarely actualized in underdeveloped countries. Many countries with valuable oil deposits remain poverty stricken and poorly governed. This is a function, in part, of the corruption, consolidation of wealth, lack of democratic accountability, failure to diversify the economy, and violent conflict that are often associated with rent-seeking behavior in oil-producing countries. It is also a function of volatility in international energy markets and investment environments. With peak oil looming and an inexhaustible demand for energy, it is crucial to examine the characteristics and implications of the resource curse, in the interest of finding ways to escape it. The main indicators of the resource curse are economic decline and democratic deficit in resource-rich countries. The three books reviewed here address the resource curse through two central questions: What explains variation in the economic and political performance of oil-producing countries? What strategies can be mobilized to avoid the resource curse? The resounding answer is to establish institutional accountability, but the intricacies of the arguments vary widely. In Oil, Dollars, Debt, and Crises: The Global Curse of Black Gold , Mahmoud A. El-Gamal and Amy Myers Jaffe argue that institutional weakness, debt crises, and regional instability make it difficult to translate oil revenue into long-term economic development. Business cycles and energy-price fluctuation confound the relationship between oil revenue and economic growth. Jaffe and El-Gamal examine the confluence of numerous cycles—business cycle, investment cycle, energy-price cycle, geopolitical cycle—to demonstrate that “the resource curse of the Middle East has been globalized” (p. 52). International economic integration has facilitated the financial contagion of the resource curse. Oil windfalls can promote growth if the international investment environment and domestic institutions are designed to harness …