Natural resource curse : can a Dutch disease become a Dutch miracle?

After the evaluation of various channels of ‘natural resource curse’ literature, such as Dutch Disease; reduction in the productive activities; low investment in human capital development; rent seeking behaviour; corruption and the institutional structure of world markets, which have been important over the last four decades, now, we suggest that the management of resource revenues and sustainability are important determinants for the conversion of ‘natural resource curse’ into ‘natural resource blessing’. For example, when we have analyzed the natural resource curse literature through case study of the Netherlands, we found mixed results in the previous studies, as well as, in our own analysis. We used different time series research techniques, for instance, graphical; tabular; comparative and econometric methods, for the detailed analysis of the Netherlands. Furthermore, we used bivariate cointegrating and Error Correction Mechanism (ECM) regressions for the periodical analysis of the Netherlands, such as, 1970-79; 1980-89; 1990-99 and 2000-06. Our empirical analysis indicates the symptoms of Dutch Disease and confirms our rentier hypothesis, during the time period between mid-1970s and mid-1980s. Our results are in favour of the resource curse literature during the time period 1970-87. First, we find negative and statistically significant relationship between manufacturing value added and total natural resource rents, during 2000-06. These findings also support our rentier hypothesis. Second, we find negative and statistically significant relationship between social welfare benefits and total natural resource rents, during 2000-06. Moreover, we confirmed our results by periodical analysis of time period 1995-2006. These findings support our investment hypothesis. Third, our empirical analysis also indicates the positive relationship between growths rate of GDP per capita and total natural resource rents during the time period 2000-06. These findings also support our investment hypothesis. Final, we did not find any cointegrating relationship between tertiary school enrolment and total natural resource rents during the time periods, such as, 1970-79 and 1980-89. On the contrary, we find statistically significant and positive cointegrating relationship between tertiary school enrolment and total natural resource rents in long term during the time period, such as, 1990-99 and 2000-06. As a result, these econometric analyses support our investment hypothesis during the time period 1995-2006 and 2000-06, except the changes in the direction of manufacturing value added. However, these findings indicate the structural and policies changes in the Netherlands, during 1990s. In 1994, the establishment of ‘Fund for Enhancement of the Economic Structure’ (FES) is the initiative of the Dutch government towards the management of natural resource revenues. This fund finances investment in ‘hard’ and ‘Knowledge’ nfrastructure. Therefore, these findings support our investment and institutional hypotheses, after 1995 onwards. If these development steps continue in the future, then it may commute ‘Dutch Disease’ into ‘Dutch Miracle’’. Relevance to Development Studies Over the last years, the policies suggest that the debate should now get away from the effect of Dutch Disease and counter-claims and move towards the issues of management of resource revenues and sustainability. Overall, the debate proposes an individual (country-level or state-level) initiative to strengthen the capacity to manage the natural resource revenues. Therefore, our case study of Netherlands will give new dimensions to researchers, for the analysis of the resource curse literature, in order to identify the appropriate policy options. We propose sustainability in the extraction of natural resources through the actions of state such as good governance and non-corrupted bureaucracy and the establishment of fund for the management of natural resource revenues through investment of these revenues in human and physical capital development. Due to the development in educational; technological and institutional structure, there would be proper distribution of natural resource revenues, in turn; there would be reduction in income inequality and higher economic growth.