The Curse of Natural Resources - Essay Example

The Curse of Natural Resources This essay will highlight on the relationship between oil, politics, and economy within oil producing nations. In addition, it will highlight the extent to which supply and demand affect the prices of oil across the globe. As part of developing the thesis, this paper will give possible solutions as to how governments can curb the fluctuation oil prices and avoid the curse of natural resources. Subsequently, this essay will strive to prove that information can help governments with many natural resources to make better decisions that will assist them in avoiding the curse and facilitate strong economic growth. Further, it will delve on the negative aspects and benefits of these natural resources for macroeconomics. Introduction The curse of Natural resources is the irony experienced by countries that have plenty of natural and non-recyclable mineral resources that they tend to have poor economic growth in comparison to countries that do not have these resources (Atkinson, Dietz & Neumayer pg 207). It draws reason from a number of reasons that include decreased competition between these nations and others among its economic peers. In addition, this state may be because of a nation’s mismanagement of resources and poor management systems that give root to corruption and ineffectiveness. These ills bring a decline in a country’s economic growth abilities and weakening its finance systems (Atkinson & Hamilton pg 53). This phenomenon became visible in the 1990s where Richard Auty described countries inability to utilize their natural wealth to improve their economies. Impact of global price on different global oil markets In essence, the global price on various commodities draws effect from the increased demand and minimal supply of these products to the said market (Marbro pg 51). Essentially, it translates to a countries increase in GDP contrary to global belief. In contrast, this effect is different in the US and Japan because in these advanced economies exports does not move the same direction as the prices in oil. In effect, the influence is negative on the GDP of these two economically able economies (Forest & Sousa pg 12). Low and elastic short run pricing of oil Most recently, the IEA released oil into the wide oil market, which was in reserves across all the vital oil-handling nations. This was because oil prices had escalated to an alarming high ratio that made the regulatory body seek to normalize this situation. Prices on oil for a long time have been relative to decrease and increase in the value of the dollar (Mabro 24). Therefore, when a financial crisis looms in the US it affects the prices of oil per barrel. In addition, the supply and demand for oil in the heavily saturated market translates to high oil fluctuating prices. In this regard, changes in oil prices and demand for the same tend to draw influence from the immense global recessions across significant economies (Marbro pg 12). However, development and growth of economies also translates to an increase in the demand for this product. This is because it creates an increase in modes of transportation that means that the demand for petroleum to propel these locomotives will also increase (Mankiw pg 674). In addition, the increase in industries within these developing economies means that their demand for oil and its products will be significant due to the manufacturing sectors use for these products. Moreover, a low elasticity in the supply curve means that oil demands have a significant effect on oil price (Mankiw pg 603). In essence, the shift on supply and demand of oil means that it will have its effect on the prices. Price relate to changes In the oil market, there are speculators who tend to influence the changes in the oil prices. In essence, business speculators are businesspersons who invest in the present and hope to make profits in the future. In the oil markets, speculators buy oil futures, a signed agreement between a seller and oil buyer where they buy at fixed rates in order to risk price gain in the future, to stabilize oil prices in the market (Marbro pg 82). For instance, their input becomes significant when they supply oil to the market hence an increase in prices and the demand is high. On the other hand, their predictions become correct when they make profits out of their guesses hence making their effort in the stabilization of oil prices cognitive. Essentially, correct predictions on how the prices will fair makes it possible to moderate oil prices and influences the supply and demand of the product (Forest & Sousa pg 136). For instance, the IEA move to sell the oil reserves held by oil handling countries was a speculative move since they hoped that oil prices would change in the near future. Relationship between natural resources and economy These two critical aspects of growth intermarry to formulate remarkable solutions to a country’s financial problems. Subsequently, the availability of natural resources within a country blots foreign interference and capital (Forest & Sousa 10). For instance, a nation with natural resources that translates to natural capital makes a nation have lesser foreign investor interest and increased corruption (Hagher pg 72). On the contrary, these nations tend to have lesser domestic investment by those in the diasporas as compared to nations that are not lucky in their natural wealth potential (Hagher pg 135). In this regard, these natural resources tend to block out other types of capital that would of benefit of the country. Ideally, foreign investors tend to sideline countries that have immense natural wealth since their perception is that they are able to sustain themselves. In essence, a country with these resources is hard to exploit since their governments are forever pensive on ensuring that their natural resources are safe. Secondly, abundance in natural resources is a curse because the saturation of the market with too much raw materials contributes to the constant fluctuation of prices ((Atkinson, Dietz & Leumayer pg 326). For instance, the over flooding of oil supply within the oil market creates competition for these countries hence reducing the profit levels for these economies. Sequentially, an economy becomes unable to meet its exportation costs since the price of the goods on offer does not favor profitability for their economies (Hamilton & Atkinson pg 40). In addition, the instability in currency values affects the economy of a country especially for those that do not have stable currencies. On the contrary, the inward direct foreign investment powers go down since the country is not able to experience foreign involvement in its development. Oil and its impact on economy In the recent past, oil prices have hit sky rocketing level with no sign of ceiling on this trend. In essence, the pump prices went up and were different with every given day. Sequentially, profits in the car manufacture and sale industry experienced precedent plummeting due to the global financial crisis. In essence, the price of the US dollar affects the stability of many global economies as it substantiates the value of products. Essentially, an oil-producing nation should be a better performer than countries that do not have oil fields. Ideally, the best performing economies are those that only rely on the oil run their economies and their industries. The role of a better performing economy is to provide its population with remarkable infrastructure and not the other way round. In this regard, a majority of these oil-producing nations have tremendous road networks especially for those whose governments have least corruption levels (Hagher pg 27). For instance, corruption becomes the cause for poor infrastructure and development (Hagher pg 76). Therefore, the government plays a significant role in ensuring proper management of countries resources for growth. Stability and trouble Seemingly, the Libyan revolution upsurges made a dent in the supply of oil across major economies. In essence, the demand for oil remained high and increased by the day, but the supply for the same was at a shortfall (Forest & Sousa 65). This is to mean that political instability in an oil-producing nation makes the nation experience the curse of natural resources since they do not benefit from their natural wealth (Hagher pg 122). In recent times, the Arab revolt made it hard for oil circulation across the globe due to the inability to access the oil fields within these nations. Sequentially, the oil prices across the globe went up with no solution in sight for the problem. This means that as much as Libya may have adequate resources to sustain their population. Therefore, the flaring of political temperatures makes it hard to make any economic strides. Ideally, the natural resources are a national heritage owned by the country to which they belong (Forest & Sousa pg 5). Therefore, the rightful owners of pieces of land are those who have documents that prove their ownership to the pieces of land that house the oil fields. In effect, government involvement is in taxation of the products subject to export. Therefore, fighting over the ownership of these natural resources makes it futile for a country to experience any form of progress since the economy will stagnate. Oil stabilization forces For instance, the Organization of Petroleum Exporting Countries is the regulatory body that controls oil prices among its member states (Mankiw pg 358). The organizations year of inception was 1960 in which it sorts to normalize oil prices from the hands of oil cartels who manipulated oil prices across the global market. The price on oil is relative to its location and its sulphur content in the oil (Forest & Sousa pg 15). Sequentially, the global demand for oil and oil related products highly depends on the global macroeconomics that means that high oil prices bring about slow or no global economic growth (Forest & Sousa pg 233). In essence, the accepted trade currency for oil is the US dollar in which pricing is as per barrel. On the other hand, price increase on oil and its products translates to increased costs of transportation and importation of many essential products across the globe (Forest & Sousa pg 58). On the other hand, taxation regulations imposed by the government may also serve as avenues for stabilizing oil prices. In effect, governments should ensure that they impose reasonable taxes on oil and oil related products to ensure that oil prices are favorable. Ideally, the cost of importation trickles down to the average citizen who tends to suffer because of the dire need for the product. Moreover, subsidies can also help in the stabilization of the oil market prices since they control the price to which oil products will fair in the market. Ideally, oil cartels who tend to manipulate oil prices will not find an avenue to do so because of the government’s imposition of stringent measures, which make it impossible for them. Conclusion In summary, the negative effects of natural resources are that they create war and political instability as citizens claim ownership. In addition, plenty of these resources make it impossible for a country to attract any foreign investment. Moreover, some of these countries portray high levels of corruption that inhibit the country for attaining any cognitive progress in infrastructure. On the contrary, having these natural resources makes a country to have bargaining power in the global oil market. Additionally, the curse of natural resources is not necessary happen countries rich in these resources. This is to mean that the countries who have properly managed their natural resources become a country’s source of revenue rather than a curse for their economies. In this regard, the curse of natural resources is an unavoidable phenomenon especially when governments implement policies that make effective use of the resources. Works Cited Atkinson, Giles, Simon Dietz, and Eric Neumayer. Handbook of Sustainable Development. Northampton, MA: Elgar, 2006. Print. Pg 49-350 Forest, James J. F, and Matthew V. Sousa. Oil and Terrorism in the New Gulf: Framing U.s. Energy and Security Policies for the Gulf of Guinea. Lanham [Md.: Lexington Books, 2007. Print. Pg 5-238 Hagher, Iyorwuese. Nigeria: After the Nightmare. Lanham, Md: University Press of America, 2011. Internet resource. Pg 20-122 Hamilton, Kirk, and Giles Atkinson. Wealth, Welfare and Sustainability: Advances in Measuring Sustainable Development. Cheltenham [u.a.: Elgar, 2006. Print. Pg 39-50 Mabro, Robert. Oil in the 21st Century: Issues, Challenges and Opportunities. Oxford: Oxford University press for the Organization of the petroleum exporting countries, 2006. Print. Pg 24-122 Mankiw, Nicholas G. Principles of Economics. Mason, Ohio: Thomson South-Western, 2011. Print. Pg 200-700 Read More