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Papua New Guinea and the Natural Resource Curse

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Abstract

Several empirical studies have found that countries experience slower rates of economic growth when exports are concentrated in natural resources (NRs). Various potential channels for this relationship have been identified including: Dutch disease; volatility in the terms of trade; and impacts on governance. This paper explores whether Papua New Guinea (PNG), a resource-rich state in the South Pacific, displays signs of suffering from the ‘NR curse’. PNG displays some evidence of Dutch disease in the decline of local manufacturing in the past decade alongside exchange rate appreciation. This may be further exacerbated by large-scale exports of liquefied natural gas in future years. Extractive industry governance is a pressing challenge for PNG and the paper makes suggestions for reform in revenue management and spending.

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Notes

  1. This paper originated in a joint research project between the United Nations Economic and Social Commission for Asia and the Pacific and the Gerald R. Ford School of Public Policy, University of Michigan. The project was conducted under the auspices of the Asia-Pacific Research and Training Network on Trade (http://www.artnetontrade.org). The views expressed are those of the authors alone.

  2. Natural resources are often valued by reference to their economic rents, referred to as ‘resource rents’. The resource rent of a natural resource is the total revenue that can be generated from the extraction of the natural resource, less the cost of extracting the resource (including a normal return on investment to the extractive enterprise). For definitions and methodology see ‘The Changing Wealth of Nations: Measuring Sustainable Development in the New Millennium’ (World Bank, 2011) or ‘Wealth, Welfare and Sustainability: Advances in Measuring Sustainable Development’ (Hamilton and Atkinson, 2006).

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Authors and Affiliations

  1. Department of Economics, University of Central America, Bulevar Los Próceres, La Libertad, El Salvador

    Nayda Avalos

  2. Inter-American Development Bank, 1300 New York Avenue, N.W. Washington, D.C. 20577, USA

    Veronica Gonzales Stuva

  3. United Nations ESCAP, United Nations Building, Rajadamnern Nok Avenue, Bangkok, 10200, Thailand

    Adam Heal

  4. Ministry of Finance, 3-1-1 Kasumigaseki, Chiyoda-ku, Tokyo, 100-8940, Japan

    Kaoru Lida

  5. Fisheries Agency of Japan, 1-2-1 Kasumigaseki, Chiyoda-ku, 100-8907, Tokyo, Japan

    Naohito Okazoe

Authors
  1. Nayda Avalos
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  2. Veronica Gonzales Stuva
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  3. Adam Heal
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  4. Kaoru Lida
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  5. Naohito Okazoe
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Avalos, N., Gonzales Stuva, V., Heal, A. et al. Papua New Guinea and the Natural Resource Curse. Comp Econ Stud 57, 345–360 (2015). https://doi.org/10.1057/ces.2015.1

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