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A commonly cited example of the resource curse is the Dutch disease, a situation that occurred in the Netherlands following a large natural gas find. Skilled workers from other sectors transfer to the resource sector4.Higher wages make the national currency less competitive5.According to the resource curse thesis (RCT) of the 1990s, a strand of development discourse informed by neoliberal development economics, natural resource-rich developing countries are cursed by their natural resources abundance, particularly minerals and petroleum.
One of the external factors is the legal regime imposed through colonialism.
Colonial laws have effectively divested indigenous peoples of their ownership and property rights in natural resources, which the neo-colonial nation-states retained upon independence, which are then transferred to transnational corporations in exchange for licence fees and non-controlling equity.
The resource curse is most often witnessed in emerging markets following a major natural resource discovery.
The resource curse gets its name from the binary way in which it affects an economy.
As a result, the nation becomes overly dependent on the price of commodities, and overall gross domestic product becomes extremely volatile.
Additionally, government corruption often results when proper resource rights and an income distribution framework are not established in the society, resulting in unfair regulation of the industry.
To the political economists on the other hand, external factors such as the volatility of world commodity prices, capital flight, tax evasion, colonialism, imperialism, neocolonialism and globalisation cause underdevelopment.
This thesis establishes that both external and internal factors contribute to the poverty and underdevelopment of Third World countries.
The resource curse theorists argue that, contrary to the assumptions of modernisation theory of the 1940s and 1950s that natural resources abundance would lead to rapid capital accumulation that would then lead to rapid industrialisation and usher in a stage of sustained economic growth, resource-rich developing countries have experienced regressive economic growth trends, systemic corruption, civil wars, political instability, and general decline in the standard of living and social wellbeing.
The resource curse theorists thus assume that resource-poor developing countries prospered because they pursued 'free market' and export-oriented policies such as open trade while resources-rich developing countries sought 'autarkic' (heavily regulated) policies that led to their regression.