Question:

How can an oil exporting country avoid the resource curse or the oil curse?

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Particularly GCC countries

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  1. What they need to to is create a SWF, soviergn wealth fund, as Norway or Dubai has done. This will basically take the proceeds from the natural resource, and isolate it from the rest of the economy so it does not create massive inflation or dependence on a scarce resource (see Russian economy 1992 to approx 1998 for an example of this).

    Isolating the wealth in SWF will have several benefits. First, investing this wealth in foreign markets will diversify the state investments, and can aid in a recession. Furthermore, these types of funds can produce a steady stream of income for projects such as old age pensions.

    While it might be tempting to spend the funds on an infrastruture boom, this must be managed carefully or a construction bubble will be created. Steady and unassuming spending coupled with smart LONG TERM investment  is key to avoid these traps.


  2. Invest its oil income in infrastructure, such as education, transportation, etc.  Encourage service industries.  Ensure that the population as a whole benefits from the income, as opposed to the elite or foreign countries (by giving away drilling rights.)  Basically more Dubai, less Saudi Arabia.

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