Columbia International Affairs Online: Working Papers

CIAO DATE: 08/2014

How Should Donors Respond to Resource Windfalls in Poor Countries?

Anton Dobronogov, Alan Gelb, Fernando Brant Saldanha

July 2014

Center for Global Development


Natural resources are being discovered in more countries, both rich and poor. Many of the new and aspiring resource exporters are low-income countries that are still receiving substantial levels of foreign aid. Resource discoveries open up enormous opportunities, but also expose producing countries to huge trade and fiscal shocks from volatile commodity markets if their exports are highly concentrated. A large literature on the “resource curse” shows that these are damaging unless countries manage to cushion the effects through countercyclical policy. It also shows that the countries least likely to do so successfully are those with weaker institutions, and these are most likely to remain as clients of the aid system. This paper considers the question of how donors should respond to their clients’ potential windfalls.