What is the meaning of the so-called “resource curse” & How does it affect current international trade?

DEFINITION

Leif Wenar describes in the article “Property Rights and the Resource Curse” that one of the practical limitations of global justice that affects international trade is the so-called “resource curse”. Resource curse refers to the paradox that countries and regions with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels, tend to have less economic growth and worse development outcomes than countries with fewer natural resources. This is hypothesized to happen for many different reasons, including a decline in the competitiveness of other economic sectors, volatility of revenues from the natural resource sector due to exposure to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions (2008:3)

AFFECTS ON INTERNATIONAL TRADE

One of the main negative effects that the resource curse has on international trade is the strong correlation between easily exploited natural resources ( diamonds, coltan, timber, drugs, gold) and armed conflict. In year 2001 more than 50 armed conflicts in the world could be linked to resource curse such as Congo, Sierra Leone and Angola.
Even more difficult extracted natural resources are strongly linked to armed conflict. In particular is the relationship between oil resources and armed conflict for independence large, such as in Colombia, Aceh, Biafra, Katanga and West Papua. But even the export of natural resources with less financially value, such as Coffee can be indirectly linked to the conflict in the way that they are coated with illegitimate taxes and customs fees (Bannon & Collier, 2003:7).

The economic consequences of armed conflict through resource course and the effect in international trade can be divided into three levels. Macro (governmental level), meso (intergovernmental level) and micro (households). In generally terms is international trade negatively affected and hurt through armed conflicts because of exports decline, interest rate rises, educational opportunities are lost, the informal economy increases, the judiciary is undermined and insecurity among citizens increases which makes trade and cooperation difficult (Stewart & FitzGerald, 2001:11). Resource course countries are also more severely affected by armed conflicts and hold less economic resources than industrialized countries to address the under-development like in the cases of Mozambique, Nicaragua, Sudan and Uganda (Stewart & FitzGerald, 2001:2).

On the macro – level, it is possible to see clear economic consequences of armed conflicts such as falling GDP, lower exports, lower food production, damaged in infrastructure, lower savings, lower tax revenue, more investment rate and accelerating inflation (Stewart & FitzGerald, 2001:12). Imports doesn’t drop as sharply as exports because the need persists, but instead to finance imports with exports, imports are paid by the captured foreign loans and the obvious dependence on aid funds (Stewart & FitzGerald, 2001:80). The aspect that armed conflict is something that requires large financial resources to operate also affects the ability of governments to manage the financial impact on reducing under-development, making the relationship stronger. Primarily focusing resources on conflict management and social resources makes living standards fall in general because of the lack of possibility to achieve positive international trade (Stewart & FitzGerald, 2001:30). The fact that modern armed conflicts also usually goes on for several years, leads to even greater financial burden on the state because the financial resources taken to deal with the conflict are coming from foreign loans, aid and credit by banks (Stewart & FitzGerald, 2001:24).

On meso – level the armed conflict result in restructuring of the finances and assets towards conflict related sectors which requires that funds are moved from another part of the public sector (Stewart & FitzGerald, 2001:18).
The informal market is growing significantly during armed conflicts where the state’s regulatory potential is breaking up and smuggling and illegitimate trade is conducted. This generates enormous economic benefits for the criminal networks involved but not for international trade in general (Stewart & FitzGerald, 2001:27).

On the micro – level the households directly or indirectly are affected by the fact that standard of living drops dramatically which gives less purse ability which affects international trade (Stewart & FitzGerald, 2001:196). Households are taking the hardest hit because they are heavily influenced by the rising inflation, wages are falling, food prices are soaring, a focus on catering is created, jobs might increase in the military sector but it changes the family structures and the income security when young men disappearing into the conflict (Stewart & FitzGerald, 2001:27).

Displacement of people because of armed conflicts that occurs through resource course also affects international trade both externally and internally, leading to underdevelopment (Stewart & FitzGerald, 2001:128). Potential employees that can participate in economic development, disappears from their own country. Often it is the people with the best economics, high education and a socially high position, which is able to escape the country, leading to so-called ”brain drain” (Stewart & FitzGerald, 2001:101).

Contrary is important to understand that international trade is not only affected by resource curse, it can also impact resource curse in a positive way and be one of the crucial factors that can lead a state’s development. However the general impact that international trade has on armed conflicts through resource course is clear and clarifies and explains the relationship between armed conflict and underdevelopment. The direct and indirect linkages can for example be seen in terms of income inequality and insecurity, which can generate a national discontent which in the end can lead to armed conflict.

Another factor for resource coursed developing countries is the fact that they doesn’t have the same opportunities in international trade because of the hierarchy system that allows developing countries’ economies to be exploited for short term gains of the actors in the international trade market. This results in long-lasting damage to the economic development which could lead to armed conflict (Stewart & FitzGerald, 2001:205-207). The single most important actor to turn this hierarchy around is the governments that through decisions on the protection of the internal market and the subsidies affecting competition can increase the possibility to act in international trade. But many other strong actors are also affecting the trade and monetary flows connected with resources coursed development countries. Transnational companies (TNC) can create a major pressure on the States’ economy due of its large financial resources. TNCs can affect the economy positively, but may also affect negatively by preventing the growth of local businesses, create monopolies and cartels, exploit local resources and labor power in an unsustainable manner, taking advantage of weak laws and put pressure on state governments in a way that leads to corruption and dependency (Stewart & FitzGerald, 2001:210).


Major international institutions like the WTO, World Bank and IMF also effects the resource coursed countries ability to act on the international trade market through the loans offered for development. The problem is that the requirements that institutions impose on borrowers in the form of structural adjustment programs of the economy can adversely affect in the long term perspective and there is several examples of loans that has been granted to illegitimate governments (Stewart & FitzGerald, 2001:215).


Another problem with international trade that goes along with the correlation between resource course and armed conflict is the fact that whoever that can oppress or terrorize the people of a country enough does allegedly get the legal right to sell off the country’s resources. The fact that there is actors within the armed conflicts that gain economically on the conflict results into one of the driving forces behind today’s armed conflict are getting longer and effects the international trade even deeper(Stewart & FitzGerald, 2001:55). One example of that is the taking over and exploitation of easily extracting natural resources such as diamonds, coltan and timber plain in Sierra Leone, Liberia and Congo. These light extracting natural resources are exploited through forced labor and smuggled out and sold on the international trade market. Even areas that contain more difficult extracting natural resources is exploited by illegitimate actors that take control and sell the land and mining rights to other companies. By racketeering, control of aid funds and illegitimate trade tariffs criminal networks gain big profits and the individuals who are paid to be part the illegal actions are raising their living standards and acquire new assets through, for example looting. This makes the involved actors more willing to be a part of the process and the effect in international trade continues (Stewart & FitzGerald, 2001:62-65).
Contrary one main premise of the legal argument, is deeply embedded in international law. The premise is that the natural resources of each country belong to the people of that country (Wenar, 2008:9-10). But in for example the cases of Equatorial Guinea, the political conditions are such that the people, who own the natural resources of the country, couldn’t possibly be consenting for anyone to sell those resources off (Wenar, 2008:6).


Even do there are initiatives like “The Clean Hands Trust” that aims for that Western governments should prevent their corporations from buying resources from severely repressive regimes and civil warriors the questions still remains on how to stop other kinds of buyers from simply stepping in and buying up these resources anyway (for example China). Which will then of course get recycled and channeled back in the economy or the economies of any country that actually refuses to buy the oil or natural resources directly from resource cursed countries (Wenar, Public Ethics Radio).

POLICY MEASURES

To sum up the arguments and cases in this assignment it is fair to say that the relationship between armed conflict and underdevelopment is crucial to analyze in order to understand how the resources curse effects international trade. An explanation of the relationship between natural resources and armed conflict is the dependence that global export of natural resources creates in form of export tariffs. Sudden reductions around the world can affect the entire national economy negatively, leading to dissatisfaction which may lead to armed conflict. Therefore would I argue that the main policy measures to achieve fairness in international trade is to create a economic development of the inner market. That aims for alternative opportunities to export in order to reduce the link between strong dependence on exports of natural resources and conflict. This is done by assist economic development and creating policy that shows how this economic growth should be handled.

However is one of the major issues that must be faced is in developing policy the conflict and trade-offs among the various ideal-typical approaches. Etah B.Kapstein explains in the article “Models of International Economic Justice” changes, policy and levels of analyses is connected with different policy theories:

  • The Communitarian nation state theory that aims for change in income distribution within countries (2004:83-85)
  • The Liber internationalist multilateral institutions theory that aims for changes in income distribution among countries (2004:85-87)
  • The cosmopolitan/priority individual theory that aims for changes in poverty rates among people(2004:87-89).

Kapstein is emphasizing on the fact that scholars of international economic justice share a common concern regarding the effects of the current rules that govern world trade, finance, and investment (2004:91-92). Wenar goes even a step further and explains that the hope for policy measures that can handle the effects of resources course has on international trade is that, the more “we” know about these problems, the more “we’ll” know about what contributions we can make to the solutions (Public Ethics Radio).
I know t about the problem of resource curse and the effects it has on international trade. But I don’t believe it is possible to achieve global justice in the sense that the resource curse can be transformed into resource luck in a short term perspective. But I do believe that creating sustainable development in a long term perspective is linked to the possibility of ensure fairness and reduce poverty. So I hope it is possible to transform the resource curse and make international trade justice.


I say so because I would argue that the one proven step towards policy measures that can handle the effect on international trade from resource curse is the Kimberley Process Certification Scheme (KPCS). KPCS was introduced by United Nations General Assembly Resolution 55/56 and is a process designed to certify the origin of rough diamonds from sources which are free of conflict funded by diamond production. The process was established in 2003 to prevent diamond sales from financing rebellious movements. In this way the certification scheme aims at preventing ”blood diamonds” from entering the diamond market which assure consumers that they purchase diamonds they are not financing armed conflicts and human rights abuses (Kimberley Process, 2011).

I argue that a such concrete steps to create both a global justice and sustainable world trough handling the resource curse is to be seen as a model on how to create policy measures. The 73 countries that has agreed upon the KPCS shows that it is possible to deal with the resource curse in a concrete way and that other policy implementations on for example timber, coltan and gold is possible to achieve. However I believe that the smuggling and illegitimate trade of natural resources from resource cursed countries is almost impossible to stop. But through a policy like KPCS the international trade will gain and eventually provide an economic foundation for improvement of the government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions.

REFERENCES

  • Kapstein, Ethan B (2004) “Models of International Economic Justice” Ethics & International Affairs 18(2): 79-92
  • Wenar, Leif (2008) “Property Rights and the Resource Curse” Philosophy & Public Affairs 36(1): 2-32
  • Bannon, Ian & Paul Collier (2003) Natural Resources and Violent Conflict: Options and Actions, Washington, D.C.: World Bank
  • Stewart, Frances & FitzGerald, Valpy (2001) War and Underdevelopment. Volume 1: The Economic and Social Consequences of Conflict, Oxford: Oxford University

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3 svar to “What is the meaning of the so-called “resource curse” & How does it affect current international trade?”

  1. Gun Gun Hidayat Says:

    Dear Erikkrantz.
    My name Gun Gun from Sapporo, Japan, student of Hokkaido Univ. I would like to cite and use some pictures in student scientific meeting by naming your link on the pictures…is it possible. tx

  2. Daniel Says:

    I’m a retired clinical psychologist and now conflict expert…I enjoy very much getting involved in other people’s conflicts and give tools and
    ideas to solve them. Conflicts are great to foster our self-growth!
    so, if you haven’t thought about it before, I’m inviting you
    to go out and get yourself a good enemy.
    Then, you can get to know yourself, what are your goals in life, your values and how
    to manage real anger in a productive way.
    What else can you wish for? Appreciate your enemy today, for teaching you so many things.
    … And, if you manage to solve the dispute and reconcile, its time to find
    another enemy!

  3. tender writing sunshine coast Says:

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