Logically, the economic development of countries with abundant natural resources is more beneficial than the one of those with shortages. However, according to the study of economics statistics which prove that countries with the most natural resources get no benefit from the windfall, resource endowment and country development are obvious not in direct proportion. Facts as such are becoming an intuitive paradox, and shaping “resource curse” phenomenon in the academic world.
After the discovery of oil in Venezuela from the early twentieth century, oil has always played a pivotal role in the economic development of the country. Although the government has huge oil revenue, it fails to diversify its industrial development, singly focusing on oil industry profits to meet the financial requirement. Due to high volatility and low predictable characteristics of the oil price, the amount of Venezuelan financial benefits has been affected. Moreover, domestic social welfare spending has also come to decrease, both causing domestic unrest and resulting in a vicious cycle phenomenon and consequently falling into the trap of “resource curse.”
Since Hugo Chavez took office in 1999, he’s dedicated to the socialist path of development. In order to expand the domestic social welfare policy and the diplomatic goals, Chavez adopted drastic ways, completely took the control over oil companies to obtain financial resources. Nevertheless, in reducing poverty rates and improving health care, his social policies have achieved a certain positive effect. In fact, it was by squandering the oil revenues in exchange for these achievements in the reign of Chavez. In the end, Venezuela still cannot get rid of the harm of “resource curse.”
This thesis examines the economic development in Venezuela from the theoretical foundation “resource curse”, explaining how oil gradually became the most important source of revenue to Venezuela in the last century. During the 1970s oil revenues had brought prosperity, but it was only a short-lived phenomenon because of the wrong economic policy-makings and inappropriate fiscal policies, weakening the country’s overall development. Even in the era of Chavez, the same situation remained, his misconducting on the redistribution of the oil income, making the Venezuelan still not be able to escape the curse. When compared with other countries of abundant natural resources and good economic development, oil seems not an original sin of the “resource curse”, but can be viewed as a double-edged sword.