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Diamonds aren’t forever: manufactured substitutes, irreversible substitution, and the new resource curse
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DOI：10.1016/j.worlddev.2026.107464.png)
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Abstract
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When technological substitutes reduce scarcity rents, resource-dependent countries face a timing challenge that traditional resource-curse models do not account for. This paper develops a dynamic political economy model of exit timing and calibrates it to Botswana’s exposure to laboratory-grown diamonds (LGDs). Observable empirical data—including rapid LGD adoption, persistent price declines, and Botswana’s reliance on diamond revenues—informs key parameters and yields policy-relevant insights. Recent market changes underscore this mechanism: Botswana’s diamond inventories reached 12 million carats in 2025, nearly twice the historical levels, while mineral revenues declined by about 60 percent compared to previous averages. The model demonstrates that, with irreversible substitution and varying adjustment speeds, common rent-defense strategies such as cartel coordination, inventory management, and vertical integration are less effective than earlier contraction and faster diversification. Calibration suggests a transition period of roughly 12–15 years; delaying adjustment by five years can reduce the present value of resource wealth by approximately 20–30 percent. The analysis uncovers a distinct form of the resource curse: failing to complete structural transformation before technological substitution renders resource rents obsolete.
Keywords:
resource curse
technological substitution
irreversible substitution
structural transformation
diamond revenues
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