The Economics of Extractive Industries and The Concept of the Resource Curse

Name
Course Code/Title
Instructor
Date
Extractive Industries and Resource Curse: Literature Review
Introduction
While the natural resource extraction sector has traditionally supported many developing countries in economic growth, social ills such as environmental pollution, child labor, rent-seeking, corruption, and violent conflicts, have continued to threaten the viability of the industry (Sexton 640). Existing literature has described how natural resource wealth has turned out to be a curse instead of a blessing. Scholars from industry and academia have identified noted that economies that largely rely on natural resources such as gas, oil, and minerals have failed to provide incentives for much of the population (Ericson and Lof 51). This has prompted players in global governance institutions to adopt technocratic and depolarized ideas of good governance. In managing the wealth gained from extractive industries, it is critical to account for inclusiveness and sustainability in addressing the challenges of the resource curse. This paper reviews current knowledge on the economics of extractive industries, the concept of the resource curse in extractive industries, and its impacts on a country's economic development.
Economics of Extractive Industries
The huge economic gains from extractive industries have led to an increasing presence of China in many extractive industry sectors of sub-Saharan Africa. According to Renwick, Gu, and Hong (1), China's role in the controversial Chinese-African relationships has spurred international debates on the extent to which Africans will benefit. Instead, as many scholars have observed, this relationship is damaging the political cultures and economies in Africa rather than being a "win-win" situation. Examining the case of the Democratic Republic of Congo (DRC), Renwick, Gu, and Hong (1) have found that China's involvement is heavily influenced by its history and the emerging engagement with the international development aid system. However, for African resource-rich nations to gain from this relationship, there is a need to strengthen policies on corporate practice and responsibilities and realize their economic growth potential.
Strong policies on corporate practices and sustainable development will check on the harms of extractive industries and reduce impacts on climate change. Extractive industries have extensively been shown to result in climate change, which is one of the global challenges affecting countries and populations. A slight fall or rise in temperature can result in remarkable changes in population, as shown by Turner et al. (250) study using the Iceland case. Jegede (95) has examined the link between climate change and extractive industries from the former, affecting different areas of the industry, while activities of extractive industries affect climate change. This interplay also results in serious economic implications in resource-rich nations in Africa. In assessing available literature, Jegede (95) has argued that the association between extractive industry and climate change can present positive and negative implications for Africa's economic growth and environmental protection. This nexus of extractive industry and climate change causes negative effects resulting from unsustainable extractive processes that lead to deforestation and an increase in carbon emissions, which further worsen the underlying challenges of global warming.
Breul and Nguyen (2021) have found that extractive industries in resource-rich nations can hinder regional economic diversifications with poor policies and practices. The study has found that overreliance on extractive industries may constrain the entry of non-extractive industries on regional levels, thus negatively affecting that country's economic growth. For instance, between 2006 and 2010, the authors report that Vietnam's overdependence on extractive industries had affected the entry of other industries into its provinces. Nevertheless, findings show that effective policies can moderate the negative impacts and encourage regional diversification and economic growth.
Resource Curse in Extractive Industries and Economic Growth
The resource curse concept and effective ways of establishing natu...