Papua New Guinea and the Natural Resource Curse

Several empirical studies have found that countries experience slower rates of economic growth when exports are concentrated in natural resources (NRs). Various potential channels for this relationship have been identified including: Dutch disease; volatility in the terms of trade; and impacts on governance. This paper explores whether Papua New Guinea (PNG), a resource-rich state in the South Pacific, displays signs of suffering from the ‘NR curse’. PNG displays some evidence of Dutch disease in the decline of local manufacturing in the past decade alongside exchange rate appreciation. This may be further exacerbated by large-scale exports of liquefied natural gas in future years. Extractive industry governance is a pressing challenge for PNG and the paper makes suggestions for reform in revenue management and spending.