Venezuela norway oil comparison

Is oil a blessing or a curse? The importance of policy choices in oil wealth management: A comparative study of Venezuela and Norway. By Marco Kirby[1]





I. Introduction …………………………………………………………………….2
II. The Venezuelan Experience ……………….…………………….….................7
III. The Norwegian Experience……… ………………………………………….17
IV. Conclusion and Policy Recommendations …………………………………..26Miguel de Cervantes Saavedra, the celebrated sixteenth-century Spanish author of Don Quijote de la Mancha, once said that "the gratification of wealth is not found in mere possession or in lavish expenditure, but in its wise application.”


I. Introduction
During the last two decades most of the Venezuelan population has been wondering how is itpossible to be so rich in oil and other mineral resources and be in such a critical economical situation. This scenario where developing countries are rich in mineral resources but exhibit a poor economic performance has been the subject of academic study for some time.[2]
Several explanations have been provided as to why most of the mineral rich countries have not been able to administer theirwealth and that in some cases their economic performance is worse than before the discovery of the resource. The most interesting theories are the Dutch Disease phenomenon and the resource curse theory.[3]
The term Dutch Disease has its origins in the Netherlands after the discovery of North Sea gas in the 1960s. The production of gas in that country generated a vast increase in its wealthafter discovering large natural gas deposits in the North Sea. Unexpectedly, this apparently positive development had serious repercussions on important segments of the country's economy, as the Dutch guilder became stronger, making Dutch non-oil exports less competitive. This disease is generally associated with a natural resource discovery and is most commonly applied to effects of exports innatural resource extractive industries on manufacturing. However it can occur from any development that results in a large inflow of revenues, including a sharp surge in natural resource prices, foreign assistance, and foreign direct investment.[4]
The Dutch disease can be defined as the adverse effect on a country's other industries that occur when one industry substantially expands itsexports, causing a real appreciation of the country's currency. This phenomenon has been particularly visible in oil exporting countries which have experienced a significant increase in their national wealth due to higher oil prices, resource discoveries, or technological progress in the energy sector. The booming demand caused by higher wealth has lead to shifts of the economy’s productive resourcesfrom the tradable sector to the non-tradable sector.
Resource curse theory suggests that resource rich countries may waste their resources advantage because of an over-optimistic estimate of their prospects that leads to the pursuit of negligent economic policies.[5] The benefit of having an abundant natural resource can make the government implement careless economic policies such as anovervalued exchange rate which cheapens imports but severely affects the agricultural and manufacturing sectors. The groups that benefit from the mineral industry tend to ignore other sectors and do not see the need for the development of plans to stimulate and help other sectors of the economy.[6]
There are indeed many more studies on economic development of resource abundant countriesbut there is no clear consensus as to the definitive factor that determines the poor performance of resource abundant countries. Simply being a resource abundant country is not a satisfactory answer. In this paper we want to concentrate on determining that it is not the existence of natural resource as such the problem but rather the failure of public authorities to avoid the dangers that...