Natural resource curse versus Dutch disease: the explanatory primacy of New Developmentalism over the paradox of plenty

ABSTRACT

This article reevaluates the two main explanatory approaches to the paradox of plenty: natural resource curse and Dutch disease. It is argued that the neo-institutionalism literature, while relevant for identifying political pathologies and rent capture incentives, operates predominantly at the level of effects rather than causes. The neoclassical model of Dutch disease, in turn, is limited to temporary price shocks. The article contends that Dutch disease, reformulated by New Developmentalism as an endogenous and chronic market coordination failure − anchored in Ricardian rents and multiple exchange rate equilibria − constitutes the structuring mechanism. The article proposes and formalizes a typology of models within the natural resource curse and Dutch disease theories.

JEL Classification: F41; O11; O13; O25; P16.

KEYWORDS:
Dutch disease; natural resource curse; new developmentalism; paradox of plenty; exchange rate

INTRODUCTION

This paper examines one of the central paradoxes in political economy: the relationship between natural resource abundance and economic development – the so-called paradox of plenty. As highlighted by Ploeg (2011), the key question is: why do resource-rich countries exhibit such divergent development trajectories?

While some nations have channeled the wealth of their resources into sustained, integrated, and diversified growth – as exemplified by Norway, through the management of its oil revenues via a sovereign wealth fund; Australia, via its successful integration of mining, agribusiness, and high-tech sectors; and Canada, underpinned by a robust institutional approach for its mining sector – others have succumbed to patterns of stagnation, socio-political conflict, and economic dependence. Notable cases include Nigeria, marked by pervasive corruption and macroeconomic volatility linked to oil rents; Venezuela, where extreme overdependence on hydrocarbons has led to macroeconomic and institutional collapse; and the Democratic Republic of the Congo, where mineral extraction has fueled violence and institutional fragility. The heterogeneity of these outcomes remains a persistent and unresolved theoretical puzzle in the economic development literature.

In short, the specialized literature offers two main lines of interpretation: i) the natural resource curse, and ii) Dutch disease. The natural resource curse thesis, although coined in the 1980s, with pioneering contributions such as Gelb (1988) on the management of oil booms, was consolidated in the 1990s with the seminal works of Auty (1993) and Sachs and Warner (1995). However, with the advance of neo-institutionalism, beginning in the 2000s, the thesis gained analytical depth, with contributions from Dunning (2008), Frankel (2012), Hodler (2006), Humphreys et al. (2007), Karl (1997), Luong and Weinthal (2006, 2010), Mehlum et al. (2006), Ross (1999, 2012), Rosser (2006), Sala-i-Martin and Subramanian (2003), and Torvik (2002). This strand emphasizes political and institutional mechanisms – such as rent capture by elites, rent-seeking, patrimonialism, corruption, clientelism, and state fragility – as the primary drivers of underdevelopment.

In parallel, the Dutch disease approach focuses on the macroeconomic effects of commodity-driven real exchange rate appreciation. Originating in the canonical model of Corden and Neary (1982) and further developed by van Wijnbergen (1984), this tradition demonstrates how foreign exchange inflows from natural resource exports appreciate the real exchange rate, reallocate productive factors, and undermine the manufacturing sector’s competitiveness. This line of analysis was later expanded, giving rise to a structuralist and New-Developmentalist reinterpretation. Theorists associated with New Developmentalism, notably Bresser-Pereira (2008, 2024), have reformulated Dutch disease not as a conjunctural adjustment but as an endogenous and chronic market coordination failure, anchored in Ricardian rents, in natural-resource-rich peripheral economies. This dynamic impedes productive diversification, generates productive disarticulation, and, crucially, shapes – ex ante – the political-institutional outcomes observed in resource-rich countries.

Based on this theoretical approach, the question guiding this article is: which approach most consistently explains the variation in development trajectories among resource-rich economies? This study argues that, although the resource curse literature has helped to clarify institutional and political effects, it fails to identify the root cause of the problem.

The central hypothesis is that chronic real exchange rate overvaluation – the core of Dutch disease – operates as a structuring economic mechanism, one that, by undermining productive diversification and systematically deindustrializing the economy, creates the objective conditions for elite rent capture (a systemic process often subsumed under the broader label of “rent-seeking” in the institutional literature) as well as institutional-bureaucratic fragility and distributive conflicts described by the resource curse thesis.

Thus, the Dutch disease approach, especially in its New-Developmentalist formulation, which interprets it as an endogenous market failure, structural to natural-resource-rich peripheral economies, not only identifies the fundamental economic obstacle but also reveals why purely neo-institutionalist prescriptions, detached from an active macroeconomic strategy, have proven insufficient to overcome the paradox of plenty.

To investigate this issue, test the hypothesis, and advance the theoretical proposition, the article adopts a theoretical-analytical and comparative approach based on a systematic, critical, and integrative review of the literature. The paper not only draws on existing literature but also offers an original contribution: the formalization of novel models of the natural resource curse and Dutch disease theories. This enables a precise contrast of their underlying assumptions, causal mechanisms, and policy implications, thereby allowing for a more rigorous identification of the explanatory core of the paradox of plenty.

The methods and techniques employed for selecting bibliographic references included systematic searches across academic databases, directories, repositories, portals, indexes, and scholarly dissemination platforms. The screening and analysis of texts followed a progressive reading protocol: beginning with skimming and scanning, advancing to inspectional and analytical reading, and culminating in syntopical reading. This approach aims to identify convergences, divergences, and explanatory gaps, thereby enabling a more comprehensive interpretive understanding of the problem at hand.

The article is structured into two sections, in addition to this Introduction and the Final remarks. The first section critically examines the literature on the natural resource curse, acknowledging its contributions to understanding political-institutional mechanisms while also highlighting its explanatory limitations. The second section, the analytical core of the paper, presents and defends the Dutch disease thesis, as conceptualized by New Developmentalism, as the central and structuring economic mechanism of the paradox of plenty. It analyzes the macroeconomic foundations of Dutch disease, its deindustrializing effects, and its capacity to provide causal intelligibility to the political and social impasses commonly attributed to the resource curse.

The paper concludes that, although influential and relevant, the natural resource curse literature captures derivative political-institutional manifestations rather than the causal core of the paradox of plenty. Dutch disease, in its New Developmentalism formulation, on the other hand, emerges as the structuring factor that articulates macroeconomic fragility, productive disarticulation, and institutional debility, constituting the key explanatory mechanism for understanding and overcoming the apparent paradox between abundance and underdevelopment.

THE NATURAL RESOURCE CURSE: NEO-INSTITUTIONALIST CONTRIBUTIONS AND THEIR THEORETICAL-CAUSAL LIMITS

The relationship between natural resource abundance and economic development underwent a decisive interpretive shift over the course of the 20th century. The dominant perspective until the mid-1900s, anchored in the notion that resource endowments constituted an automatic comparative advantage, was gradually dismantled as evidence of stagnation and volatility accumulated in economies highly dependent on commodities, particularly from the 1970s onward.

Although elements of this critique were already present in classical formulations, such as in Gerschenkron (1962), who pointed to the risks of resource-based paths of industrial backwardness, and in Hirschman (1958), who emphasized the limited and “enclave-like dynamics” of extractive sectors. It was the systematically inferior performance of commodity-exporting countries after the 1970s that lent theoretical substance to the natural resource curse thesis.

The modern formulation of the natural resource curse emerged pioneeringly with Gelb’s (1988) analysis of the disappointing performance of oil-exporting countries following the commodity booms of the 1970s. The diagnosis gained empirical consistency with Auty (1993) and, above all, with the seminal study by Sachs and Warner (1995). They identified a negative correlation between natural resource abundance and economic growth in a sample of 97 countries analyzed from 1970 to 1989. The authors classified as “resource-rich countries” those whose commodity exports (mineral and agricultural) represented more than 20% of the total.

Sachs and Warner (1995) identified a recurring pattern: commodity-intensive economies exhibit, on average, lower economic growth and greater macroeconomic volatility. Subsequently, neo-institutionalist literature has associated this performance with weaker institutions. Based on these findings, the hypothesis solidified that an endowment of natural resources could, paradoxically, undermine the development trajectory.

This phenomenon came to be known as the natural resource curse. The authors’ thesis helped redirect the debate on overcoming economic underdevelopment toward political-institutional mechanisms as key explanatory vectors. As a result, the neo-institutionalist strand became dominant in studies on the paradox of plenty. It structured its explanation of the phenomenon around four interconnected mechanisms:

1. Rent capture, patrimonialism, and clientelism: the expansion of state revenues due to natural resource abundance – decoupled from a broad-based tax system – reduces the need for distributive bargains between the state and societal groups. This dynamic foster and reinforce predatory elites, thereby entrenching patrimonialist arrangements (Karl, 1997).

2. State fragility and low bureaucratic capacity: managing large inflows of resource revenues demands highly specialized state capacities. Fragile, fragmented states tend to misallocate rents and consolidate anti-developmental coalitions (Dunning, 2008; Mehlum et al., 2006).

3. Socio-political conflict and instability: strategic natural resources, particularly those that are easily appropriable, incentivize violent competition among class factions, social strata, and groups coalitions for control of the state, generating secessionism, insurgencies, and economic, social, and political instability, especially in societies with weak national cohesion (Humphreys, 2005; Ross, 1999, 2012).

4. Disincentives to productive diversification: “easy rents” diverts investments and technological effort away from knowledge-intensive sectors, creating a lock-in effect in primary-sector specialization (Auty, 1993; Sachs and Warner, 1995).

It becomes evident that this core approach to the natural resource curse tends toward institutional determinism: it interprets underdevelopment as an almost inevitable outcome of adverse institutional arrangements that are activated and intensified by the influx of easy rents. In this view, natural abundance functions as an independent variable that almost mechanically induces the emergence of extractive institutions, in which a narrow group controls the state to appropriate rents, as opposed to inclusive institutions that would distribute opportunities and foster development.

Resource abundance, therefore, would consolidate a predatory pattern of accumulation that not only prevents institutional modernization but often legitimizes it through violent and illegal forms of control. Consequently, resource wealth, although potentially beneficial, tends to entrench a predatory accumulation pattern, characterized by patrimonialism, a culture of privilege, clientelism, corruption, low accountability, and, in extreme cases, the legitimization of violent and illegal practices for controlling resources and rents.

This neo-institutionalist perspective has evolved in recent years. Studies such as those by Luong and Weinthal (2006, 2010) and Humphreys et al. (2007) have demonstrated that it is not natural resource abundance per se but rather the specific institutional design of resource governance that determines developmental outcomes. They argue that variables such as property rights regime (state, private, or mixed), the architecture of extraction contracts, the quality of accountability systems, and the sophistication of fiscal rules function as critical intervening or moderating variables.

From this perspective, countries endowed with robust institutions ex ante – with high state organizational capacity, bureaucratic autonomy, and effective coordination mechanisms – are able to transform resource rents into long-term investments, thereby mitigating macroeconomic volatility. Fragile states, by contrast, succumb to disorganization and rent dissipation. In other words, for these authors, development outcomes (the dependent variable) are not determined directly by resource abundance (the independent variable) but are mediated and filtered through institutional quality (the intervening variable). Success or failure does not stem mechanically from natural endowments, but from the institutional capacity to govern them. The key difference, therefore, lies in causal logic and analytical emphasis. Namely:

i) Mechanical Corruption Model (pioneering/deterministic view):

$A\to B\to C$

Where:

A = Natural resource abundance (exogenous independent variable)

B = Corruption (rent capture/rent-seeking) (dependent variable, triggered by A)

C = Underdevelopment (final dependent variable)

This is the simplest model of the natural resource curse found in Sachs and Warner (1995). Resource abundance directly induces predatory behavior in politics and institutions, which, in turn, undermine the expansion, integration, and sophistication of the productive structure, thereby perpetuating underdevelopment.

ii) Institutional Mediation Model (dominant neo-institutionalist view):

$A\to \left(B\rightleftarrows C\right)$

Where:

A = Natural resource abundance (independent variable)

B = Quality of institutions (intervening and reciprocal variable)

C = Economic performance (dependent variable)

This model, known as the institutional mediation approach, constitutes the dominant perspective in contemporary economic and political literature on the paradox of plenty. In this approach, natural resource abundance (A) does not mechanically determine the final outcome; rather, its effects are filtered and mediated by the quality of institutions (B). The analytical emphasis lies on the reciprocal relationship (⇄) between these variables: strong institutions, ex ante, can mitigate the negative effects of revenue inflows, while, as part of a perverse feedback loop, abundant rents themselves may erode and weaken existing institutions.

Thus, the focus of underdevelopment in resource-rich or non-resource-rich countries shifts decisively toward governance as the key explanatory factor. In this model, the political sphere is treated as autonomous from the structural imbalances of the economy.

It is evident that while the pioneering view treats institutions essentially as a dependent variable, that is, as corrupted and weakened by the influx of rents (A → B), the contemporary neo-institutionalist strand repositions them as an intervening or moderating variable. In the latter, pre-existing institutional quality (B) filters the impact of resource abundance (A), determining whether rents are transformed into development or stagnation (A + B → C). Although both perspectives agree that “institutions matter,” they diverge fundamentally regarding their place in the causal structure: institutions are understood as a consequence of the resource curse in the first case, and as a precondition for overcoming it in the second.

Despite its widespread influence in economic and political literature, the natural resource curse thesis suffers from substantive analytical limitations. The first concerns a problem of endogeneity: much of the literature treats institutions as exogenous causes of underdevelopment, whereas, in fact, institutional maturation is endogenous to the process of economic development. Countries do not become developed because they have strong institutions. They build strong institutions as they expand, integrate, and sophisticate their productive structure. Thus, attributing underdevelopment primarily to “weak institutions” amounts to confusing cause and consequence (Bresser-Pereira, 2024).

A second limitation, closely linked to the previous one, is the institutional fetishism that permeates this literature. Institutional reforms are prescribed as a universal solution, a kind of one-size-fits-all recipe. Yet they tend to be largely ineffective when not accompanied by an active macroeconomic strategy capable of neutralizing chronic exchange rate overvaluation, particularly because their implementation, paradoxically, requires the very state capacity that such reforms seek to build. Furthermore, this literature frequently falls into a narrow institutionalist bias, underestimating structural constraints such as terms of trade, peripheral insertion in the world economy, imperialism, and technological dependence.

Third, institutional fetishism not only produces prescriptions that are often ineffectual but also sustains a practice of institutional imposition by core economies onto the periphery. This dynamic is described by Evans (2003) and further developed in collaboration with Chang as “institutional monocropping” (Chang and Evans, 2005). It refers to the uncritical promotion of a single, idealized institutional model, based on Anglo-American experiences, as a universal solution for development. Such monocropping tends to depreciate and distort the specific history, culture, and social density of peripheral countries, ignoring the fact that effective institutions are constructed endogenously and adaptively.

Consequently, the combination of economic underdevelopment and the imposition of this homogeneous institutional pattern in the international economic system restricts the incentives and capacities of states and citizens in dependent economies to reach their full potential. The “good governance” agenda, frequently associated with the resource curse thesis, is an emblematic example of this bias, as it shifts the debate away from the necessary macroeconomic measures (such as neutralizing Dutch disease) toward decontextualized institutional reforms.

In fact, according to Bresser-Pereira (2024), the “institutional monocropping” imposed by the natural resource curse thesis is a mechanism of economic control. It is an auxiliary arm for keeping peripheral economies in a condition of dependence, that is, solely as producers and exporters of commodities. It is a model of neoliberal orthodoxy imposed by core economies that ultimately makes it unfeasible for the periphery to industrialize.

Fourth, there are recurrent methodological shortcomings within the natural resource curse thesis. Influential studies in this tradition suffer from weak econometric specifications and the improper use of proxies, which inflated correlations that were later shown to be unstable (Haber and Menaldo, 2011). Moreover, there is a strong tendency toward homogenization, whereby resource-rich countries are treated as equivalent units. This approach ignores the fact that nations display radically different historical trajectories, export compositions, state capacities, socio-political densities, and geopolitical positions.

A fifth limitation is that the model also presents a failure in the categorization of natural resources. It is known that “the right type of resource,” defined by ease of appropriation, capital intensity, and market structure, can profoundly moderate the economic and political effects of abundance, thereby weakening deterministic interpretations of the natural resource curse (Boschini et al., 2007).

Finally, a decisive limitation stems from the neglect of macroeconomics, especially the central mechanism that affects virtually all resource-rich economies: the tendency toward chronic real exchange rate overvaluation. By focusing almost exclusively on political-institutional variables, the natural resource curse literature shifts attention away from the fundamental economic obstacle: Dutch disease.

This critique is reinforced by evidence that questions the very persistence of the curse effect. As shown by Collier and Goderis (2012), the significant negative impact of resource abundance on growth is predominantly a short- to medium-term phenomenon; in the long run, the correlation becomes statistically insignificant or even positive. This finding suggests that the “curse” is not a historical fatality but rather a temporary developmental detour that can be overcome, most likely through the correction of fundamental macroeconomic imbalances.

Thus, although it has illuminated important political mediation mechanisms of underdevelopment, the natural resource curse thesis, by framing the paradox of plenty as a mere epiphenomenon of “weak institutions” (Sala-i-Martin and Subramanian, 2003), fails to identify the causal core of the phenomenon. At its core, the paradox of plenty is not primarily a moral or institutional problem, but a problem of relative prices. In this sense, many of the institutional mechanisms identified in the literature are derivative effects rather than root causes (Bresser-Pereira, 2008, 2024).

DUTCH DISEASE IN NEW DEVELOPMENTALISM: THE STRUCTURING MECHANISM OF THE PARADOX OF PLENTY

New Developmentalism argues that this neo-institutionalist emphasis on the paradox of plenty – by ignoring exchange rate management – serves the interests of core economies. These prefer to shift the debate toward “strong institutions,” “good governance,” and “institutional models,” thereby deflecting attention away from the need for active exchange rate policy in peripheral economies. Moreover, the neo-institutionalist model struggles to grasp “[…] what Dutch disease actually is, a phenomenon that only became relatively intelligible after my (little-known) 2008 model” (Bresser-Pereira, 2024, p.254).

Dutch disease emerged as a concept in the 1970s, rooted in the concrete experience of the Netherlands. The discovery of vast natural gas reserves in the Groningen field in the 1950s, and their intensive commercial exploitation from the 1960s onward, generated a massive inflow of export revenues. This boom triggered a sharp appreciation of the Dutch guilder, which, combined with rising domestic wages and prices fueled by the new wealth, rapidly eroded the international competitiveness of the country’s industrial sector. The result was a premature and negative deindustrialization: a paradox in which newfound natural resource wealth undermined the nation’s previously established manufacturing base. It was The Economist (1977) that, in analyzing this case, coined the term “Dutch disease” to describe this economic pathology.

Simultaneously, similar observations were made in the United Kingdom following the discovery of North Sea oil, solidifying the perception that this was a systemic macroeconomic phenomenon. However, as Bresser-Pereira (2024) notes, it was the Argentine economist Marcelo Diamand who first systematically identified the existence of two distinct exchange rate equilibria: the industrial equilibrium and the natural resource equilibrium. Thereby anticipating, as early as the beginning of the 1970s, the core analytical insight of what is now understood as Dutch disease.

Diamand (1972) demonstrated that primary-exporting economies structurally coexist with an exchange rate that is compatible with the primary sector (more appreciated) but insufficient to ensure the competitiveness of dynamic manufacturing sectors. This chronic misalignment, stemming from the ability of primary sectors to generate foreign exchange even under an appreciated exchange rate, creates a macroeconomic environment in which industry operates under systematic disadvantage, leading to deindustrialization and low productive complexity. For this reason, it can be argued that Diamand (1972) is a direct precursor of contemporary structuralist macroeconomics, having established the conceptual foundation upon which later New-Developmentalist formulations were developed.

The theoretical formalization of Dutch disease, however, was established by Corden and Neary in 1982. They developed the canonical “booming sector” model, which distinguishes three sectors: i) the booming sector (natural resources), ii) the lagging tradable sector (typically manufacturing, unaffected by the boom), and iii) the non-tradable sector (services, construction). The model demonstrates how income inflows from the booming sector increase demand for non-tradable goods, pushing up their prices and wages, and attracting labor and capital away from the manufacturing sector. This reallocation process, amplified by an appreciation of the real exchange rate, leads to deindustrialization and the reprimarization of the productive structure, which constitute the core symptoms of the disease.

Van Wijnbergen’s (1984) contribution deepened this analysis by incorporating two central elements absent from the original model: i) the role of expectations and intertemporal dynamics in shaping the real exchange rate, and ii) the impact of resource booms on domestic saving, the external balance, and capital accumulation. In his model, the author demonstrates that Dutch disease does not manifest solely through the static effects of factor reallocation (resource movement effect) and the relative price increase of non-tradable goods (spending effect). It also operates through intertemporal mechanisms, whereby the anticipation of future revenues generated by the commodity boom leads to additional real exchange rate appreciation, even before the actual increase in exports occurs. Dutch disease is cyclically acute.

Moreover, van Wijnbergen (1984) shows that when resource revenues are spent on consumption rather than productive investment, net domestic saving declines, exacerbating external vulnerability and constraining the economy’s capacity to finance the expansion of the manufacturing sector. This represents a refinement within the neoclassical paradigm initiated by Corden and Neary. Van Wijnbergen retains the core assumption that Dutch disease is triggered by a temporary price boom and analyzes how expectations and financial flows accelerate and amplify this process. His model is more sophisticated, dynamic, and realistic, yet it still conceptualizes the disease as a transitional pathology, an intertemporal disequilibrium tied to an external shock. In this view, the cure lies in the natural market adjustment following the boom or in policies aimed at managing saving and capital flows during the disease cycle.

In 2008, a new breakthrough emerged in the understanding of Dutch disease dynamics, operationalized by Bresser-Pereira (2008, 2024) within the approach of New Developmentalism. Bresser-Pereira’s model (2008, 2024) represents a paradigmatic rupture. It does not deny the mechanisms described by Corden and Neary (1982) or van Wijnbergen (1984); rather, it reinterprets them as manifestations of a deeper structural problem. This marks the emergence of a new theoretical model of Dutch disease, presented as a critical transcendence of the canonical model.

Although both models, Corden and Neary (1982) and Bresser-Pereira (2008, 2024), share a tripartite segmentation of the economy: i) the commodity-exporting sector; ii) the non-resource-based tradable sector (manufacturing), and iii) the non-tradable goods sector (services), and agree that the exchange rate overvaluation resulting from a boom harms the industrial sector, their core premises, central mechanisms, and policy implications diverge radically.

Despite this common foundation, the models diverge on fundamental theoretical points. In the Corden and Neary (1982) model, grounded in neoclassical inspiration, Dutch disease is an adjustment phenomenon resulting from a temporary commodity-price boom. The causal mechanism operates through the resource movement effect and the spending effect, which appreciates the real exchange rate and induces deindustrialization during the boom period. It is therefore an analysis of a temporary disequilibrium, centered on the booming sector, in an economy that is assumed to return to a unique long-run equilibrium once the external shock subsides.

Van Wijnbergen’s (1984) model, although valuable in adding complexity to the neoclassical analysis, remains within the paradigm that conceives Dutch disease as a phenomenon triggered by a price boom. Its contribution lies in refining the dynamics of the process, not in redefining the nature of the problem itself. The central cause in this model becomes the anticipation of future boom-driven income flows, which affects domestic saving, aggregate demand, and the current account.

In contrast, Bresser-Pereira’s (2008, 2024) model, grounded in structuralist and New-Developmentalist principles, redefines Dutch disease as a persistent structural misalignment of the real exchange rate, anchored in Ricardian rents. Its ultimate cause is not the commodity-price boom, but the existence of Ricardian rents in natural-resource sectors. These rents are independent of short-term price fluctuations and instead derive from the physical abundance of the resource itself. As a result, the real exchange rate remains chronically overvalued relative to the industrial equilibrium, thereby rendering high-complexity tradable sectors uncompetitive.

The analytical core, thus, shifts from sectoral analysis to the dynamics of the real exchange rate and the existence of multiple equilibria. Bresser-Pereira (2008, 2024) explicitly introduces three competing exchange rate equilibria that shape the determination of the effective real exchange rate:

1. Current-account equilibrium: the exchange rate that intertemporally balances the current account, given the economy’s capacity to generate foreign exchange through commodity exports that embody Ricardian rents.

2. Industrial equilibrium: the exchange rate required to make industrial firms using the best available technology internationally competitive, thereby enabling productive diversification and structural upgrading.

3. Current-account-deficit equilibrium (or external-debt equilibrium): an exchange-rate level even more appreciated than the current-account equilibrium, at which the current account becomes structurally deficit, with the gap financed through external borrowing or speculative capital inflows.

The absence of these multiple equilibria in the models of Corden and Neary (1982) and van Wijnbergen (1984), which assume a single equilibrium, is precisely what limits their capacity to explain chronic and pathological exchange rate misalignments. As Bresser-Pereira summarizes:

“To arrive at a complete conceptualization of Dutch disease, we must add a third equilibrium – the current-account deficit equilibrium, or external debt equilibrium [...] If a country suffers from the disease, it will have three exchange rate equilibria: the current account equilibrium exchange rate, the industrial equilibrium exchange rate, and the current account deficit equilibrium.” (Bresser-Pereira, 2024, p.251, emphasis in the original)

This conceptual approach enables Bresser-Pereira (2024) to operationalize and measure the severity of Dutch disease through two definitions:

1. “Original” or “strict” Dutch disease: corresponds to the difference between the industrial equilibrium exchange rate and the current-account equilibrium exchange rate. It represents the pure exchange rate handicap faced by the manufacturing sector due to Ricardian rents.

2. “Extended” Dutch disease: corresponds to the difference between the industrial equilibrium exchange rate and the current-account-deficit equilibrium exchange rate. This measure captures the additional pressure arising when economic policies (such as attracting capital inflows to finance consumption or maintaining high interest rates) further appreciate the currency, thereby exacerbating the industrial sector’s competitive disadvantage and generating external vulnerability.

Moreover, Bresser-Pereira’s (2008, 2024) formulation makes it possible to derive a coherent set of active policies for neutralizing Dutch disease (such as the creation of sovereign wealth funds, export taxes, and strategic exchange-rate management). This policy prescription stands in sharp contrast to the implications of earlier models. The canonical Corden and Neary (1982) model, by interpreting the process as an optimal reallocation of resources, not only fails to generate normative guidance for correcting the imbalance but implicitly discourages intervention, viewing it as distortionary. Van Wijnbergen’s (1984) model, while more sophisticated, remains confined to the macroeconomic management of a cycle, focusing on saving behavior and capital flow policies during the boom. The distinction is thus paradigmatic: the New-Developmentalist perspective shifts the focus of economic policy from merely managing the effects of a boom to structurally neutralizing a chronic distortion in relative prices.

The transition from the canonical model to the New-Developmentalist model represents more than an analytical refinement, it entails a paradigm shift in explanation: from a view that naturalizes deindustrialization as a byproduct of an external shock, to one that diagnoses it as the core of a macroeconomic trap that drives productive disarticulation and strangles development. It is this reformulation that allows New Developmentalism to elevate Dutch disease to the status of the structuring economic mechanism of the paradox of plenty, simultaneously providing both the diagnosis and the policy tools for its overcoming.

For New Developmentalism, the exchange rate functions as a “switch”: when competitive (hovering around the industrial equilibrium) it connects firms employing frontier technology to international markets, enabling investment, innovation, and productive sophistication; when overvalued, it disconnects them, rendering dynamic industrialization unfeasible and condemning the economy to primary-export specialization. This overvaluation, by persistently shifting the real exchange rate away from its industrial equilibrium, disrupts the manufacturing base and undermines the expansion, integration, and sophistication of the productive structure.

Exchange rate overvaluation not only drives deindustrialization and blocks the accumulation of productive capabilities but also generates perverse institutional effects. By concentrating income in rentier sectors and shrinking the industrial tax base, it undermines state capacity, erodes the developmental coalition, and fuels the very mechanisms of rent capture, corruption, and clientelism described in the natural resource curse literature.

Thus, New Developmentalism does not merely add a macroeconomic variable to the debate; it inverts the causal hierarchy: institutional fragility is not the cause of underdevelopment, but a derivative effect of chronic exchange rate distortion. In this view, Dutch disease is not an institutional epiphenomenon, but the causal nexus that articulates macroeconomic fragility, productive disarticulation, and institutional debility, thereby constituting the structuring mechanism of the paradox of plenty.

Dutch disease, in this sense, is for New Developmentalism an economic problem with social, political, and institutional repercussions. The natural resource curse, by contrast, is fundamentally a political-institutional and moral issue. The two phenomena differ in both nature and consequences. According to Bresser-Pereira (2024), whereas Dutch disease entails the long-term overvaluation of the national currency, harming the economy’s most advanced sectors, the natural resource curse involves the widespread corruption of politicians and business elites who seek to appropriate revenues derived from commodity exports.

“Whereas Dutch disease is one of the explanations for a country’s low economic growth because an appreciated exchange rate for the manufacturing sector makes competent firms barely competitive or outright uncompetitive the natural resource curse demoralizes the country’s citizens and allows the Global North to attribute low growth to the idea that its citizens are corrupt (rent-seekers), not striving to produce but only to appropriate a share of that rent.” (Bresser-Pereira, 2024, p.253)

As an exercise in categorization and systematization, the evolution of the Dutch disease concept can be represented by three models with distinct causal premises. Namely:

i) Canonical Dutch disease Model (neoclassical conjunctural adjustment):

$P\to DD\left(t\right)\to ED$

Where:

P = Commodity price boom (exogenous shock) (exogenous independent variable).

DD (t) = Dutch disease as a temporary phenomenon (intermediate adjustment variable).

ED = Efficiency-driven deindustrialization(dependent variable, interpreted as an efficient reallocation of resources).

ii) Intertemporal Dutch disease Model (financial amplification of the shock):

$\left[P+E\left(P\right)\right]\to DD\left(t+\right)\to \left(ED+F\right)$

Where:

[P + E(P )] = Commodity price boom + expectations of future resource rents (independent variables, with E(P) endogenous).

DD (t+) = Dutch disease as a temporary phenomenon, amplified and accelerated by capital flows and credit expansion.

(ED + F ) = Efficiency-driven deindustrialization + external vulnerability (debt accumulation, remittances, decline in net saving; i.e. dependent variables with financial effects).

iii) New-Developmentalist Structural Model of Dutch disease (permanent coordination failure):

R ⇒ Eca = f (R) (1)

{Eca < E ind} ⇒ DD(p) = E ind – Eca (2)

DD(p) ⇒ (SD + Z) ⇒ I ⇒ Sud (3)

R ⇒ Eca < Eind ⇒ DD(p) ⇒ (SD + Z) ⇒ I ⇒ Sud (4)

Where:

R = Ricardian rents (structural independent variable).

Eca = Current-account equilibrium exchange rate (intermediate variable, determined by R).

E ind = Industrial equilibrium exchange rate (structural reference variable).

DD (p) = Permanent /chronic Dutch disease (intermediate variable emerging from the structural gap Eca < Eind, expressed as DD (p) = E ind – Eca.

SD = Structural deindustrialization (dependent variable, effect of DD (p)).

Z = Infeasibility of productive sophistication (dependent variable, effect of DD(p)).

I = Erosion of the material basis for institutions (dependent variable, effect of SD + Z; reflects the accelerated weakening of state capacity, bureaucratic autonomy, and productive coalitions).

Sud = Structural underdevelopment (final dependent variable).

iv) New-Developmentalist Structural Model of Extended Dutch disease (aggravation through macroeconomic policy)

R ⇒ Eca = f (R) (1)

{Eca < Eind } ⇒ DD (p) = Eind – Eca (2)

V ⇒ Edef = Eca – V (3)

∴ DD(p*) = Eind – Edef = [DD (p)] + V (4)

DD (p*) ⇒ (SD⁺+ Z ⁺) ⇒ I ⁺ ⇒ Sud ⁺ (5)

R ⇒ Eca < Eind ⇒ DD (p) $\underrightarrow{V}$ DD (p*) ⇒ (SD⁺+Z ⁺) ⇒ I ⁺ ⇒ Sud ⁺) (6)

Where:

R = Ricardian rents (structural independent variable).

Eca = Current-account equilibrium exchange rate (intermediate variable determined by R).

Eind = Industrial equilibrium exchange rate (structural reference variable).

Edef = Current-account-deficit equilibrium exchange rate (additional intermediate variable).

DD (p) = Permanent/chronic Dutch disease (intermediate variable emerging from the structural gap Eca < Eind, measured as DD (p) = Eind – Eca).

V = Appreciation-biased macroeconomic policies (intervening variable, comprising policy choices that further appreciate the currency – e.g. high interest rates, exchange rate anchors, financial liberalization that attracts speculative capital).

DD(p*) = Extended permanent/chronic Dutch disease (aggravated intermediate variable, resulting from DD (p) + V, measured by the widened gap DD(p*) = Eind – Edef).

SD⁺ = Deepened structural deindustrialization (dependent variable, resulting from the enlarged exchange rate gap DD(p*)).

Z⁺ = Amplified blockage of productive sophistication (dependent variable).

I⁺ = Accelerated erosion of the material basis for institutions (dependent variable).

Sud⁺ = Aggravated structural underdevelopment with external vulnerability (final dependent variable).

The four models presented offer a systematic visualization of the theoretical-analytical evolution of the Dutch disease concept over five decades of research. The Canonical Model (i), formulated by Corden and Neary (1982), interprets Dutch disease as a conjunctural disequilibrium. A commodity price boom (P) triggers a temporary exchange rate appreciation (DD(t)), which in turn leads to deindustrialization (ED ), understood as an efficient reallocation of factors. This is a single-equilibrium model, in which exchange rate distortion is self-reversing and dissipates once the shock subsides.

The Intertemporal Model (ii), developed by van Wijnbergen (1984), represents a substantive advance by incorporating expectations about future rents and financial flows. The system no longer responds solely to the current shock but also reacts to the anticipation of future profits [P + E(P)], which amplifies and prolongs exchange rate appreciation (DD(t+)). As a result, adverse financial effects (F), such as a decline in domestic saving, heightened external vulnerability, and deterioration of the balance of payments, emerge alongside deindustrialization (ED). Nevertheless, Dutch disease remains conceptually temporary, albeit extended over a longer horizon.

The theoretical leap occurs with the New-Developmentalist Structural Model (iii), in which the independent variable shifts from a shock (P) to a structural feature: Ricardian rents (R). These determine a current-account equilibrium exchange rate (Eca) more appreciated than the industrial equilibrium rate (Eind). The disparity {Eca < Eind } configures a permanent market coordination failure, generating a structural/chronic Dutch disease DD(p). Unlike the neoclassical models, here the exchange-rate distortion is not temporary; it is the system’s own perverse equilibrium. From it, a causal chain is unleashed: deindustrialization (SD), blockage of productive sophistication (Z), erosion of the material base for political institutions, generating the accelerated weakening of state capacity, bureaucracy, and productive coalitions (I) and structural underdevelopment (Sud ). This formulation explicitly integrates real economy, macroeconomics, and political economy.

The New-Developmentalist Structural Model of Extended Dutch disease (iv) deepens this logic further by incorporating the role of appreciation-biased macroeconomic policies (V), namely, high interest rates, exchange rate anchors, and inflows of speculative capital. Such policies shift the economy from (Eca) to an even more appreciated level, (Edef), widening the exchange rate gap and producing an aggravated form of Dutch disease, DD (p*). The result is an intensification of deindustrialization (SD⁺) an amplified blockage of productive sophistication (Z ⁺), accelerated erosion of institutions (I ⁺), and the consolidation of a deeper, financially fragile structural underdevelopment (Sud⁺) This represents the political dimension of permanent/chronic Dutch disease, wherein the state, rather than neutralizing exchange rate distortion, reproduces or amplifies it.

Therefore, the New-Developmentalist model constitutes a paradigmatic rupture, consolidated through two fundamental analytical shifts. First, from allocation to institutions: whereas the canonical and intertemporal models stop at sectoral misallocation (ED), the structural model advances to show how productive disarticulation (SD + Z), by reshaping distributive incentives and the class structure, creates the objective conditions for the political-institutional phenomena described by the natural resource curse thesis, thereby inverting its proposed causal hierarchy. Second, from a single to multiple equilibria: in contrast to the neoclassical notion of Dutch disease as a single long-run equilibrium (where exchange-rate distortion is a self-correcting deviation), the New-Developmentalist model is micro-founded on the idea of multiple and conflicting exchange-rate equilibria (current, industrial, and deficit), which underpin Dutch disease as a permanent condition.

This dual redefinition, of the nature, cause, and consequences of Dutch disease, allows it to be understood not as an institutional epiphenomenon or a mere market adjustment, but as the primary economic cause itself. By structurally disorganizing the productive base, it determines the space of political and institutional possibilities. Thus, this section has not only presented a new model but has demonstrated that Dutch disease, as conceptualized by New Developmentalism, constitutes the causal axis that articulates and explains the trajectory of underdevelopment in resource-rich economies.

FINAL REMARKS

This article began with a central question: which approach most consistently explains the variation in development trajectories among natural-resource-rich economies? The analysis conducted throughout the text makes it possible to clearly identify a fundamental theoretical divide among the three major approaches that seek to explain the paradox of plenty. On one side, the neo-institutionalist literature on the natural resource curse – now dominant in the international debate – interprets underdevelopment as the direct consequence of political-institutional mechanisms such as rent capture, rent-seeking patrimonialism, clientelism, and state fragility. On the other side, the neoclassical model of Dutch disease, formulated by Corden and Neary (1982) and later expanded by van Wijnbergen (1984), conceives the phenomenon as a temporary shock that reallocates factors across sectors, producing a transient exchange-rate appreciation and a conjunctural form of deindustrialization.

Finally, in contrast to both, Bresser-Pereira’s (2008, 2024) structuralist and New-Developmentalist model reconceptualizes Dutch disease as a permanent/chronic exchange rate misalignment, anchored in Ricardian rents and in the coexistence of multiple exchange rate equilibria, thus framing it as a structural market failure, endogenous to natural-resource-rich peripheral economies.

These three analytical approaches not only differ in their core assumptions but also yield radically distinct diagnoses and policy implications, as summarized in Table 1.

Table 1
Comparison of explanatory paradigms of the paradox of plenty

Dimension	Natural Resource Curse (Neo-institutionalist)	Dutch disease (Corden and Neary, 1982)	Dutch disease (Bresser-Pereira, 2008, 2024)
Nature of the phenomenon	Political-institutional pathology; rent capture.	Temporary commodity-boom shock; sectoral adjustment.	Permanent/chronic structural misalignment caused by Ricardian rents.
Causal mechanism	Incentives for rent capture, rent-seeking and weak institutions.	Resource movement effect + spending effect.	Persistent disparity between exchange-rate equilibria (industrial vs. current and deficit).
Theoretical approach	Neo-institutionalist.	Neoclassical.	Structuralist / New Developmentalism.
Analytical unit	State, elites, and governance.	Three sectors (booming, lagging, non-tradables).	Real exchange rate and its three equilibria.
Role of the exchange rate	Marginal.	Adjustment variable.	Strategic and determinative variable.
Core causal chain	Abundance → Rent capture → Weak institutions → Underdevelopment.	Resource boom → Real appreciation → deindustrialization (temporary).	Ricardian rents → Permanent/chronic Dutch disease → Structural deindustrialization / reprimarization (productive disarticulation) → Erosion of material base → Erosion of fiscal base → Structural underdevelopment.
Recommended policy	“Good governance.”	Non-intervention (market optimality).	Active neutralization of Dutch disease.
Time horizon	Long-term institutional trajectory.	Short/medium term (duration of the boom).	Long-term structural condition.

In light of this comparison and grounded in the models presented in Sections 1 and 2, it is possible to answer the question that guided this article. The central hypothesis advanced here, that Dutch disease, as reformulated by New Developmentalism, constitutes the primary causal core of the paradox of plenty, finds robust theoretical support.

The analysis reveals that many phenomena emphasized in the natural resource curse literature are not, in fact, autonomous causes, but rather derivative effects of structural exchange rate distortion. This theoretical reordering does not discard the contributions of neo-institutionalist scholarship; instead, it repositions them: their mechanisms remain valid, yet they operate at the level of effects, not causes. The key to explaining the paradox of plenty, however, lies in exchange rate dynamics and productive structures.

It becomes evident that, for New Developmentalism, Dutch disease generates a structuring causal chain: chronic exchange rate overvaluation disrupts the industrial base, which in turn i) erodes the material base for complex institutions, ii) weakens social coalitions favorable to development, and iii) creates the objective conditions for rent-seeking and rent capture. Thus, what the neo-institutionalist literature interprets as political pathology, weak institutions, extractive elites, instability appears here as a consequence of a prior economic obstacle. Causality is inverted: it is not weak institutions that produce macroeconomic vulnerability; rather, macroeconomic vulnerability generates, conditions, and reproduces weak institutions.

Ultimately, the “paradox of plenty” is, to a large extent, a paradox of diagnosis. The natural resource curse thesis captures important political-institutional manifestations, but these derive from a more fundamental economic cause. The New Developmentalism formulation, by integrating Ricardian rents, multiple exchange-rate equilibria, and political economy, provides the critical synthesis that resolves this paradox. It demonstrates that chronic real exchange rate overvaluation is not a symptom but rather the structural disease which, by rendering industrialization unfeasible, undermines the material foundations of development and, consequently, corrodes the political sphere.

In theoretical terms, the article has offered an original contribution by formalizing models for both the natural resource curse and Dutch disease theories, which are absent in the literature. Regarding Dutch disease, this systematic exercise has made it possible to show that the evolution of the concept is not incremental but implies a paradigm shift: from a conjunctural phenomenon to a structural coordination failure anchored in multiple exchange rate equilibria. This has allowed not only for contrasting their premises, causal mechanisms, and policy implications but also for identifying, with greater rigor, the explanatory core of the paradox of plenty.

Finally, it is important to emphasize that to fully validate the hypothesis and test the proposed models, systematic empirical research would be necessary. The development of econometric tests, comparative case studies, historical analyses, and the deepening of dynamic modeling must, therefore, be placed on the research agenda to evaluate: i) the empirical intensity of the misalignment between the industrial and current-account equilibria; ii) the effective impact of the productive structure on state capacity and the institutional pattern; iii) the correlation between exchange rate appreciation cycles and rent capture; and iv) the effectiveness of Dutch disease neutralization policies (sovereign wealth fund, export tax, active exchange rate management). This research program is indispensable for transforming the theoretical hypothesis defended here into a consolidated empirical paradigm.

Data Availability Statement

Data generated or analyzed during this study are provided in full within the published article.

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• Editor responsible for the evaluation process:
  Luiz Carlos Bresser-Pereira

Publication Dates

• Publication in this collection
  10 July 2026
• Date of issue
  2026

History

• Received
  31 Mar 2025
• Accepted
  16 July 2025