Prelude to the Resource Curse

The literature on resource-rich states leaves a key and prior question unexplored: Why and how do states choose to develop their natural resources? The authors address this gap by explaining the divergence in oil and gas development strategies in five energy-rich Soviet successor states. The authors argue that leaders choose development strategies based on the domestic constraints they face when they either discover or gain newfound authority over their resource endowments: (a) the availability of alternative sources of export revenue and (b) the level of political contestation. Where leaders enjoy a high degree of access to alternative export revenue and a low level of contestation, they choose to nationalize their energy sector and to minimize international involvement. Where leaders face a low degree of access to alternative export revenue and a high level of contestation, they privatize their energy sector with direct international involvement. This argument also accurately predicts initial energy development strategies in several other developing countries.