Explain the resource curse and two strategies to mitigate it.

• A. The resource curse is when resource wealth fuels governance problems and underdevelopment; strategies: transparent extractive governance and diversification of the economy.
• B. The resource curse is about lack of resources; strategies: import more.
• C. The resource curse is about excessive taxation; strategies: tax cuts.
• D. The resource curse is about technological dependence; strategies: open-source.

Answer: (A)

The resource curse describes how abundant natural-resource wealth can actually hinder development by fueling rent-seeking, corruption, weak institutions, and economic volatility, rather than leading to broad-based growth. When a country depends heavily on resource revenues, those funds can empower elites, distort incentives, and crowd out other productive sectors, especially if revenues are volatile or poorly managed.

Two effective strategies to counter this are: first, transparent extractive governance. This means open, accountable management of resource revenues—clear reporting of what is earned and how it is spent, strong budgeting and auditing, anti-corruption measures, and mechanisms like public budget scrutiny and independent oversight to prevent rent-seeking and misallocation. Second, diversification of the economy. This involves using resource revenues to build and support other sectors—investing in manufacturing, agriculture, and services, developing human capital, and creating institutions and infrastructure that reduce dependence on a single commodity. A sovereign wealth or stabilization fund can also help smooth revenue swings and finance long-term development beyond resource cycles.

The other choices describe different problems (like not enough resources, excessive taxation, or technology dependence) and do not address the governance and diversification dynamics that define the resource curse.