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International Business, 8th Edition by Michael H. Moffett, Iikka A. Ronkainen, Michael Czinkota

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PART 4 CASE 4

PETROLEUM DEVELOPMENT AND THE CURSE OF OIL

An unusual meeting took place in October at St. Matthew's church in Baltimore. After the sermon, some parishioners stayed behind to hear two emissaries from Africa explain the harm that America's gasoline guzzling does to the poor in faraway lands. An elderly parishioner raised his hand: “I know Africa is very rich in diamonds, gold and oil, but the people are very poor. Why are your governments so bad at managing that wealth?” Austin Onuoha, a human-rights activist from Nigeria, smiled and conceded, “You hit the nail right on the head.”

“The Curse of Oil: The Paradox of Plenty,” The Economist, December 20, 2005, print edition

One of the most controversial of topics related to the development of petroleum resources around the globe is what is commonly referred to as the curse of oil or the paradox of plenty. The curse of oil is the argument that the development of oil and gas resources in many emerging market countries results in a slower rate of economic development, increasing both poverty and income inequality, while increasing corruption and fraud. Proponents of the curse point to countries such as Angola and Nigeria as examples of how the development of oil and gas over several decades have resulted in lower levels of economic development despite the country earning billions of dollars from their oil.

THE ECONOMICS OF THE CURSE

There are at least three different principles at work in the curse. The first is that most ...

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