It can be easy to assume a rich supply of natural resources is synonymous with wealth. However, it has been noted that an abundance of natural resources is often correlated with decreased prosperity. Countries with an abundance of natural resources often experience decreased growth. This phenomenon has been called “the resource curse”. The resource curse has been the subject of intense analysis. A review of the literature reveals an answer to whether the curse exists, as well as provides solutions to prevent it.
Natural resources are a major export for many countries. The resource curse is not noted in all countries abundant in natural resources. This discrepancy has led many to question if natural resources play a role in economic conditions. Papyrakis, Elissaios, and Gerlagh (2004) examined the impact natural resources have on economic conditions. The data revealed natural resources to have both positive and negative impacts on economic conditions. Natural resources alone negatively impact economic growth, but when considered in conjunction with other variables, they have been found to have a positive impact on economic growth. Additionally, natural resources impact various transmission channels in different ways. Despite some positive influence, the data has revealed an abundance of natural resources to be associated with poor economic growth (Papyrakis, Elissaios, & Gerlach, 2004). In contrast, Brunnschweiler and Bulte’s (2008) review of the evidence revealed natural resources to have a positive impact on growth. However, this positive impact existed only if a country did not become resource-dependent. Being resource-dependent was not related positively or negatively to economic growth. It is theorized that “resource abundance” and “resource dependence” are used interchangeably (Brunnschweiler & Bulte, 2008). These two phrases should not be used in this manner. Although they describe similar processes, they are separate. Their impacts on economic growth are quite different, and a distinction must be made between the two.
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The resource curse does not impact every nation, as every nation does not possess an abundant supply of natural resources. Ross (1999) pointed out that commodities no longer make up the majority of a developed nation’s income. However, commodities are still a crucial part of developing countries’ economies. It is critical to be aware of how to best manage natural resources and avoid the resource curse. Resource booms are associated with the creation of conditions that lead to poor economic outcomes. For example, the exportation of resources is associated with poor long-term thinking. Leaders often make decisions based on short-term gain. These decisions can have disastrous consequences. The answer to mitigating the impact of the “resource curse” lies in properly managing political and social conditions (Ross, 1999). This is similar to the findings of Mehlum, Moene, and Torvick (2008). They noted that countries with abundant natural resources can have good or bad economic growth. Economic growth is impacted by institutional quality. The impact of natural resource abundance was reviewed by exploring grabber-friendly and producer-friendly institutions. Grabber-friendly institutions were associated with decreased aggregate income, while producer-friendly institutions were associated with increased income (Mehlum, Moene, & Torvick, 2008). These findings reiterate what much of the literature suggests. Natural resource abundance alone does not impact economic growth.
If the resource curse is not evident in all natural resource wealthy nations, it is important to investigate what factors contribute to poor economic conditions. An understanding of these factors can help avoid the resource curse. Haber and Menaldo (2011) found natural resources to not have a negative relationship with democracy. Natural resource abundance and dependence were not found to be associated with authoritarianism (Haber & Menaldo, 2011). Rosser (2006) reviewed available literature relating to the resource curse. While the literature does suggest resource abundance leads to poor outcomes, other factors that could contribute to poor outcomes are often ignored. To get a correct view of the problem, social and political factors must also be considered. Natural resource levels are not the only factor that shapes economic conditions. As evidence, it is pointed out that many resource-abundant countries perform well economically (Rosser, 2006). In further investigation of conditions that help create the resource curse, Humphreys, Sachs, and Stiglitz (2007) theorized the resource curse to be a result of increasing wealth. Resource growth was noted to cause lower growth rates, increased corruption and volatility, and war. These consequences are thought to be due to the impact natural resources can have on economic and political environments. The authors suggested adequate planning and the development of strong institutional structures as methods of avoiding the negative impacts of wealth.
Additionally, they linked inadequate accountability, poor bargaining power, and poor access to information as factors that can lead to negative outcomes. The authors suggested revenue be appropriately allocated as a method of ensuring better outcomes. The negative impact of abundant resources is not ignored by the authors. Rather, they provide strategies to avoid poor outcomes (Humphreys, Sachs, & Stiglitz, 2007). Corruption is one reason the “resource curse” seems to exist. Corruption leads to poor outcomes. Tyburski (2012) explored the impact remittances had on levels of corruption. Remittances were found to reduce corruption. This reduction in corruption is thought to be due to remittances increasing government accountability. The data explored showed that corruption decreased with greater amounts of remittances (Tyburski, 2012). These findings suggest a method that can help the resource curse can be avoided. Additionally, methods of avoiding the resource curse have been proposed. Robinson, Torvik, and Verdier (2006) suggested that institutional design and politics have a tremendous impact on whether natural resources enhance or prevent growth. Resource booms have been associated with an increase in the ability of politicians to influence election results. Countries experience a decrease in economic growth when institutional design does not promote a high level of accountability. Increased accountability is associated with positive outcomes (Robinson, Torvik, & Verdier, 2006).
One country that is rich in natural resources, yet slow in economic growth, is Mexico. Mexico is abundant in natural resources, yet the exportation of products relating to these resources is low. Mexico’s geographical location makes it ideal for trade, yet its economic growth is slower than one would expect. The factors that contribute to Mexico’s lackluster growth are worth investigating.
Mexico is a nation rich in land and resources. The country’s desirability has made it a target for various groups. Mexico has been plagued by instability for hundreds of years. This instability is still evident today with the rule of drug cartels. Mexico’s attractive land, as well as its resource abundance, is likely the reason groups have long fought for its control. As a result, Mexico has been plagued by chronic instability. The country has cycled through many leaders, and many wars have been fought. This history of instability is likely a contributing factor to the corruption that has long plagued Mexico. This corruption helped create an environment where drug cartels could thrive. To best understand Mexico’s present state, its history must be examined.
In ancient times, Mexico was inhabited by various tribes. Arguably the most sophisticated, the Aztecs built an impressive civilization. This civilization attracted the attention of explorers. In the 1500s, Mexico’s idyllic atmosphere came to a halt. Herman Cortez arrived in Mexico, and he sought to conquer the land. When Cortez arrived, the Aztecs believed him to be one of their gods. As a result, they did not initially oppose him. He captured the nation’s leader, and fighting broke out. Eventually, Cortez was successful in defeating the Aztecs. Mexico became the property of Spain. Under Spanish control, taxes were high and life was restricted. Having no immunities to combat the diseases brought from Spain, many of the Aztecs died (interKnowledgecorp, 2008).
Mexico continued under Spanish rule until the 1800s. Napoleon eventually gained control of Spain, and Mexico had ambitions of independence. Mexican independence was fought for through a long war. This led to a period of intense instability. Finally, in 1821, Mexico achieved independence through the signing of the Treaty of Cordoba (interKnowledgecorp, 2008). With a long-fought battle for independence won it seemed as though Mexico would finally be on its way to achieving its goals. However, things did not go smoothly for the newly independent nation. Soon after achieving independence, Mexico lost a war with the United States. This contributed to fighting among Mexican officials. As a result of this fighting, leadership in Mexico frequently fluctuated. This led to greater instability. Santa Ana, the president at the time of the lost war, left his position. The new president of Mexico, Benito Juarez, implemented many changes. These changes, including land reform, were wildly unpopular with more conservative leaders. As a result, another war broke out. Known as the War of Reform, the fighting depleted Mexico’s resources. Juarez was victorious, but Mexico was in financial trouble. This instability led to Napoleon III’s invasion. To invade, an archbishop named Maximilian was sent to the country. He gained control for several years. During this time, the archbishop began to reform Mexico. Surprisingly, his initiatives were very progressive. Similar to their distaste for Juarez, conservative leaders disapproved of Maximilian’s reform. In 1867, Juarez retook control of the country. Maximilian was executed (interKnowledgecorp, 2008).
Mexico’s return to the familiar leadership of Juarez would be short-lived. Porfirio Diaz overthrew the Mexican government in 1876. This began a period known as Porfiriato. During this time, Diaz made changes to the Mexican industry. Most industries were sold to foreigners. Diaz’s reign ended when he was challenged by Francisco Madero. Madero assumed leadership in 1910, but he was soon assassinated. His assassination was carried out by Victoriano Huerta, who then assumed leadership of the country. The assassination led to a string of events that began the Mexican Revolution. This violent war resulted in many leadership changes (interKnowledgecorp, 2008).
Mexico eventually reached a point of general stability. In 1928, Plutarco Elias Calles came into power. He developed the Partido Revolucionario Institutional (PRI) political party. This party remains prominent in Mexico today. PRI president General Lazaro Cardenas was elected in 1934. His ambitious land reform and nationalization of the oil industry still impact present-day Mexico. Throughout the intervening years, the PRI has remained dominant in Mexico (interKnowledgecorp, 2008). Widespread violence is associated with Mexican politics. Many political candidates have been assassinated. Mexico’s unstable leadership has existed for centuries. To further add to Mexico’s troubles, drug cartels have begun to obtain greater political control. This control has been obtained through violence. Drug cartels have increasingly murdered political officials, as well as Mexican civilians (Zhou, 2017). Additionally, Mexico’s longstanding battle with corruption has been inadequate. Mexican officials are susceptible to drug cartel bribes. It is estimated that the cartels prominent in Mexico have billions of dollars. This increases their ability to influence Mexican politicians (Heritage Foundation, 2017). While Mexico has the potential to amass great wealth, constant instability has impeded economic growth. Despite recent attempts to increase economic growth, Mexico’s ability to prosper is threatened by its current infiltration by drug cartels.
Economic Development in Mexico
Mexico is a country rich in natural resources. In addition to abundant oil and precious metals, Mexico’s economy is also boosted by trade and tourism. However, Mexico does not perform to its economic potential. The reasons for this are not completely clear, but many factors are thought to contribute to Mexico’s poor performance. One factor thought to be responsible is Mexico’s singular focus on the exportation of manufactured goods. This has been the focus of Mexican economic policy for decades.
One event central to economic development in Mexico was the signing of the North American Free Trade Agreement (NAFTA). Following NAFTA, Mexico shifted its focus to an economy with less state invention. This change had been occurring for several years, and the passage of NAFTA expedited the process. NAFTA helped Mexico’s economy shift to one that heavily relies on manufacturing and exports (Moreno-Brid, 2007). Mexico’s shift to manufacturing changed the degree of government involvement in the economy. Before this shift, the government was more heavily involved with industrialization. Following NAFTA, it was hoped that the economy would rely on the manufacturing of exports. This reliance was thought to be a method to prevent inflation. The economic plan also aimed to reduce Mexico’s deficit. Reduced involvement in industry reduced government spending. It was also believed that the law would cause Mexico’s desired economic changes to become permanent (Moreno-Brid, 2007).
NAFTA’s passage brought the promise of fulfilling the economic goals Mexico had long held. However, the law did not bring about all of the changes the government hoped for. Moreno-Bird (2007) pointed out that Mexico enjoyed low inflation, increased exportation, and a reduction in the federal deficit. However, GDP growth has been slow. Mexico has not seen the ambitious changes NAFTA was initially thought to bolster (Moreno-Bird, 2007).
While manufacturing is a large part of Mexico’s economy, Mexico also is abundant in natural resources. Mexico is rich in oil and precious metals. Before the 1980s, Mexico’s economy relied heavily on oil. However, despite having a rich oil supply, oil accounts for under 15% of Mexico’s exports. Manufactured goods are exported far more often (Embassy of Mexico United Kingdom, 2017). Interestingly, oil prices fell globally around the time Mexico implemented trade liberalization (Advameg, 2017). It is possible that Mexican officials began to view oil as too volatile a commodity to focus on. After the mid-1980s, Mexico began to heavily focus on the exportation of manufactured goods. Moreno-Bird (2007) theorized Mexico’s disappointing economic performance to be a result of the infrastructure of its industrial sector. Mexico’s industrial sector has evolved throughout times of political instability. In the decade before the passage of NAFTA, Mexican strategy concerning industry included providing subsidies for businesses that performed at a certain standard. This was meant to inspire better performance from businesses. Under this strategy, businesses were encouraged to analyze their performance.
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