Resource Curse, Finance Curse

Nicholas Shaxson and John Christensen have a new book (free PDF here) arguing that specialization in finance, like specialization in oil, is bad for a country. The graph above shows the difference between two rankings of the world’s countries: one ranking is by Gross National Income (GNI) per capita, the other is the Human Development Index (HDI, which includes GNI per capita, but also life expectancy and literacy). A high rank is a low number (i.e., highest is #1), so if you’re a rich country with a low HDI for your income, you get a big score on this graph, and so on.

The relationship illustrated in the graph is well known for countries specializing in extractive natural resources – oil, copper, etc: it’s called the resource curse, with abundant extractive resources associated with slower growth and higher inequality. The Shaxson & Christensen book shows a nice parallel between the resource curse and a similar effect in finance.

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