The reasons for this are that natural resources can lead to rent-seeking activities diverting scarce resources such as human and physical capital away from activities that favor growth. At the same time, natural resource abundance may cause a persistent real appreciation that may weaken the rest of tradable goods sectors, which is known as the Dutch disease. A natural conclusion of these works is that in countries that prevent rentseeking, with human capital abundance, access to credit and macroeconomic policies that promote stability, these damaging effects can be avoided. Subsequent studies have been oriented in that direction. Several studies have explored new links between natural resources and growth, controlling for the strengths of each economy. For example, Arezki and van der Ploeg (2007) find that this negative relationship between natural resource abundance and growth is heavily affected by the country’s openness to international trade. They find that, the more open the economy, the less likely for natural resources to have a negative contribution to growth. Therefore, trade openness can change the curse into a blessing. Meanwhile, Mehlum et al. (2006), using the same data as Sachs and Warner (1997), include an interaction between the quality of institutions and natural resource abundance to examine its effect on growth. They find that the critical element behind the natural resource curse is bad institutions. In other words, if the country has good institutions, natural resources allow them to grow faster. 1 The interaction with the human capital endowment is also important.

We can expect stronger domestic price pressures over the next few years, and hence slightly higher inflation than we have seen historically. Slightly higher inflation does not mean runaway inflation. MAS will remain vigilant and calibrate monetary policy to ensure that this does not happen. We will not allow inflationary pressures to become entrenched or inflation expectations to build up. Managing risks to economic and financial stability MAS is preparing for risks to economic and financial stability posed by escalation of Eurozone crisis Besides watching growth and inflation trends, MAS has been focusing on downside risks to Singapore’s economic and financial stability. We monitor the risks closely, take steps to mitigate these risks where we can, and draw up contingency measures to manage them if they materialise. The key risk facing the Singapore economy and financial system is the ongoing crisis in the Eurozone. While Eurozone governments have taken important steps to deal with crisis, we must be prepared for a more adverse turn of events. The escalation of the Eurozone crisis can affect Singapore in three ways: first, the impact on economic growth; second, stresses on our financial markets; and third, the safety and soundness of our financial institutions. Let me begin with economic growth. A deeper recession and credit crunch in Eurozone can impact our growth through trade and financial channels. The trade channel will be more direct and impactful. The Eurozone is our largest export market, and Singapore’s exports to the Eurozone have been declining since Q3 last year.