Resource Curse Revisited: Sovereign Wealth Funds, Ownership, and Institutions
Why Ownership Deserves a Larger Place in the Resource Curse Debate
The resource curse has long stood as one of the great ironies of development economics. Countries endowed with oil, gas, or minerals should, at least in principle, begin with an advantage. They possess assets the world demands and, with them, a potential source of public revenue large enough to finance infrastructure, education, and long-run development. Yet the historical record has never been so simple.
Since the seminal work of Sachs and Warner (1995), a large body of literature has argued that resource abundance often brings not prosperity, but a range of economic and political adversities. Resource-rich countries have been associated with slower growth, weaker competitiveness, lower human development, greater internal conflict, and more pervasive rent-seeking (see, for example, Sachs and Warner 1995; Auty 2001; Rosser 2006).1 What should have been a blessing has, in many cases, appeared closer to a curse.
Over time, these strong arguments have created a deeply pessimistic view towards resource-rich economies. But that pessimism has also sparked the literature to numerous debates. For instance, Brunnschweiler (2008) re-examined the claim and found a positive effect of natural resource abundance on economic growth. Brunnschweiler and Bulte (2009) pushed the debate further by showing that conflict may be a cause of resource dependence, rather than its consequence. James (2015), meanwhile, argued that much of the negativity surrounding the resource curse stems from a misleading tendency to treat resource abundance and resource dependence as if they were the same thing. More recently, Bruckner, Habib, and Lokanc (2023) revisit the debate and find no evidence that natural resource abundance is inherently detrimental to development. On the contrary, they show that natural resources can be associated with higher income, lower poverty, and stronger human development outcomes.
This mixed evidence has kept alive one of the central questions in development economics: are natural resources inherently a blessing, or do their effects depend on how they are governed? Countries such as Norway and Qatar are frequently invoked as examples of resource-rich economies that have managed, in different ways, to convert natural wealth into longer-term national strength. Their experience suggests that the problem may not lie in resources themselves, but in the economic and institutional conditions through which resource wealth is managed.
One of the most influential economic explanations for the resource curse is the Dutch disease.2 During a boom in the natural resource sector, resource-rich economies can experience a loss of competitiveness in other tradable sectors, particularly manufacturing. Rising export revenues place upward pressure on the domestic currency, making other exports less competitive, while labor and capital are drawn toward the booming resource sector. The result is a distorted economic structure and growing imbalance across sectors (Corden and Neary 1982; Reisinezhad 2020).
A related argument in the literature is that the deeper challenge lies less in abundance itself than in the instability that often accompanies it. As Cavalcanti, Mohaddes, and Raissi (2015) suggest, the challenge may stem more from volatility than from resource abundance. Resource revenues are inherently volatile, subject to boom-bust cycles, and are exhaustible. Under such conditions, much of the policy discussion has focused on how states can smooth these shocks, avoid procyclical spending, and preserve wealth over time.
It is in this context that some countries have established sovereign wealth funds (SWFs), or more specifically resource funds, as a response to the volatility of natural resource revenues.3 Financed from natural resource revenues, these funds are typically justified as instruments for stabilization, saving, and investment. Their purpose is to allocate excess resource revenues in ways that protect the economy from the fiscal and macroeconomic pressures associated with volatile commodity income. By reducing the tendency toward procyclical expenditure and helping governments manage windfalls more prudently, resource funds are often seen as one of the most practical institutional responses to the resource curse (Tsalik and Ebel 2003).
A considerable body of work has found that resource funds can generate positive effects, particularly when supported by credible institutions. Existing studies link them to reduced exchange-rate volatility, improved fiscal outcomes, stronger institutional quality, smoother public expenditure, and a greater capacity to dampen the adverse effects of commodity shocks on trade and growth (see, for example, Shabsigh and Ilahi 2007; Bagattini 2011; Tsani 2013; Sugawara 2014; Mohaddes and Raissi 2017; Affuso, Istiak, and Sharland 2022; Alsadiq and Gutiérrez 2023). One notable findings, Bagattini (2011), for example, finds that the mere presence of stabilization funds can improve fiscal outcomes, even where the economic rationale for establishing them appears weak, although their effectiveness depends heavily on institutional quality.
At the same time, resource funds are not without criticism. Their success depends not only on formal design, but on the broader political and institutional setting in which they operate. A fund may exist on paper, but if it is weakly governed, politically exposed, or unsupported by a meaningful revenue base, its capacity to stabilize and save may be far more limited than the optimistic view implies.
In this sense, a broad logic has emerged in the literature. Resource wealth can generate booms, but also volatility, fiscal instability, and competitiveness problems. Resource funds, especially when supported by strong institutions and sound management, are therefore often presented as one way to transform temporary windfalls into more stable and productive forms of wealth, and thereby mitigating the resource curse. Yet one part of the story remains underexplored: ownership.
The more interesting question may lie one step earlier. A resource-based sovereign wealth fund can only manage revenues that the state actually captures. This immediately raises a deeper issue: who owns the resources in the first place?
It is here that ownership becomes analytically central. Luong and Weinthal (2010), for instance, advances an alternative claim: the so-called resource curse is rooted neither in resource wealth nor in resource dependence itself, but in the ownership structure governing natural resources. Khanna (2017) reinforces this point by showing that state ownership and control over resources are associated with stronger growth outcomes than other ownership arrangements, though only where pre-existing institutional quality is sufficiently strong. More recently, Bruckner, Habib, and Lokanc (2023) identify state ownership as an important transmission channel through which natural resource abundance shapes economic development, particularly in countries that combine above-median state ownership with stronger policies and institutions.
At the same time, ownership should not be treated as a simple solution. Greater state control may allow governments to capture a larger share of resource rents, expand fiscal space, and channel those revenues into stabilization, saving, or long-run investment. But the risks are equally clear. Where institutions are weak, stronger state control can also create more room for patronage, political interference, inefficiency, and rent extraction. Private ownership, by contrast, may limit the state’s direct command over rents, but it can also bring capital, technology, and managerial discipline that state-led systems do not always guarantee. The point, then, is not that state ownership is inherently superior to private ownership, but that the developmental significance of ownership is conditional on the institutional environment in which it operates.
Seen from this angle, not all resource funds are institutionally equivalent. A fund in a country where the state directly controls a large share of extractive rents differs fundamentally from one in a country where the sector is largely privately dominated and public revenues depend mainly on taxation and royalties. The distinction is not merely legal. It shapes the scale, stability, and fiscal significance of the revenues that can ultimately be transferred into the fund. Before asking whether a sovereign wealth fund works, then, we should first ask whether the state has sufficient command over resource rents for the fund to matter in the first place.
If ownership matters for the resource curse, and resource funds matter for how resource-rich countries respond to it, then the interaction between the two may represent one of the most important institutional questions in resource governance. To this end, the nexus between ownership structure and resource funds remains relatively underexplored in the literature.
This broader discussion is also relevant for Indonesia. As a resource-rich country, Indonesia has experienced resource booms in the past, but their long-run management has often been uneven. Although Indonesia now has sovereign wealth vehicles such as INA and Danantara, it still lacks a resource fund specifically designed to stabilize and save commodity revenues. That absence matters. If resource wealth brings not only fiscal opportunity, but also volatility, exchange-rate pressures, and broader macroeconomic risks, then questions of ownership and institutional readiness become difficult to ignore. Should Indonesia consider establishing a resource-based sovereign wealth fund? Would its current ownership structure support meaningful rent capture? And is the country’s institutional quality strong enough for such a fund to work as intended? These are not easy questions, but they are precisely the kinds of questions that deserve more serious attention.
All in all, the resource curse literature has taught us to think carefully about volatility, institutions, and the governance of resource wealth. Sovereign wealth funds have rightly become part of that story. Yet before resource wealth can be stabilized, saved, or invested, it must first be claimed. Ownership, then, is not a peripheral concern. That is why ownership matters. And it is also why the more fundamental question remains: who owns the rents?
The International Monetary Fund (IMF) defines resource-rich countries as countries that derives at least 20% of its exports or 20% of its fiscal revenues from non-renewable resources.
The Dutch disease refers to an economic phenomenon wherein the rapid growth of a specific sector, particularly natural resources, leads to a decline in other sectors. Additionally, it is often characterized by a significant appreciation of the domestic currency.
Sovereign Wealth Funds (SWFs) are government-owned forward-looking investment institution responsible for managing a nation’s resource revenues, surplus foreign exchange reserves, fiscal surpluses, or legacy ownership claims over state assets aiming to achieve long-term macroeconomic goals (Dixon, Schena, and Capap´e 2022). Funds that are derived from natural resource revenues are often referred to as Natural Resource Sovereign Wealth Funds (NR-SWFs) or resource funds. Countries may establish multiple SWFs, each with distinct objectives, such as stabilization, investment, and savings.