Natural Resources and State Fragility
Background paper to the ERD2009
Paper prepared for the Conference on “Financial markets, adverse shocks and policy responses in fragile countries”, organised by the European Report of Development in Accra, Ghana, 21-23 May, 2009.
This paper provides an overview of the relationships between natural resources, governance, and economic performance. The relationships run in both directions, with re-sources potentially altering the quality of governance, and governance being particularly important for resource poor countries. Both these relationships have threshold effects; if governance quality is above a certain level, then natural resources can lead to further improvement, while, below the threshold, further deterioration may take place. Theoretical and empirical work is reviewed, the interactions between the relationships discussed, and policy implications outlined.