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When Does Natural Resource Abundance Lead to a Resource Curse?

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  • Murshed, S. Mansoob
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    Abstract

    This paper looks at the relationship between natural resource endowment, particularly the type associated with minerals and plantations, and economic development. It may not be natural resource endowment per se but its type that matters, when it comes to growth and development. Certain types of natural resources such as oil and minerals have a tendency to lead to production and revenue patterns that are concentrated, while revenue flows from other types of resources such as agriculture are more diffused throughout the economy. The former category is dubbed a point-source economies, while the latter type is referred to as diffuse. Most countries in the first group have been prone to growth failure in recent times, with notable exceptions such as Botswana and Indonesia. The paper reviews two sets of models, the first set outlining the onset of the resource curse, and the second category sketching conditions where resource booms actually aid growth, or policies to avoid the resource curse. The vast majority of these models stress intersectoral linkages. Political economy considerations associated with resource rents are also reviewed. The focus is on institutions that determine the policy superstructure. The importance of institutions is highlighted, followed by a sketch of institutional malfunctioning and an overview of the empirical models of institutional determination. An explicit model of growth collapse with micro-foundations in rent-seeking behaviour and contests is also presented. The empirical analysis put forward is one of the few econometric investigations into the resource curse that includes analysis over time, as it is a panel data estimation. Due to this time series property our proxy for institutional quality is the degree of democracy. Our findings suggest that a point-source type natural resource endowment does retard democratic and institutional development, which in turn hampers economic growth. Institutions and institutional functioning are the crucial link between resource endowments, geography and policies, on the one hand and economic outcomes on the other hand.

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    Bibliographic Info

    Paper provided by International Institute for Environment and Development, Environmental Economics Programme in its series Discussion Papers with number 24137.

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    Date of creation: 2004
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    Handle: RePEc:ags:iieddp:24137

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    Keywords: Resource /Energy Economics and Policy;

    References

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    Cited by:
    1. Milanovic, Branko & Hoff, Karla & Horowitz, Shale, 2008. "Political Alternation as a Restraint on Investing in Influence: Evidence from the Post-Communist Transition," MPRA Paper 11829, University Library of Munich, Germany.
    2. Syed Mansoob Murshed, 2007. "The conflict-growth nexus and the poverty of nations," Working Papers 43, United Nations, Department of Economics and Social Affairs.
    3. Mainguy, Claire, 2011. "Natural resources and development: The gold sector in Mali," Resources Policy, Elsevier, vol. 36(2), pages 123-131, June.
    4. Thorsten Drautzburg & Inna Melnykovska & Rainer Schweickert, 2008. "Which Membership Matters? External vs. Internal Determinants of Institutional Change in Transition Countries," Kiel Working Papers 1421, Kiel Institute for the World Economy.
    5. Rob Vos, 2007. "What we do and don’t know about trade liberalization and poverty reduction," Working Papers 50, United Nations, Department of Economics and Social Affairs.
    6. Syed Mansoob Murshed, 2007. "What Turns a Blessing into a Curse? The Political Economy of Natural Resource Wealth (Invited Lecture)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(4), pages 351-377.
    7. Rabah Arezki & Frederick van der Ploeg, 2007. "Can the Natural Resource Curse Be Turned into a Blessing? The Role of Trade Policies and Institutions," Economics Working Papers ECO2007/35, European University Institute.
    8. Rabah Arezki & Frederik van der Ploeg, 2007. "Can the Natural Resource Curse Be Turned Into a Blessing? T+L3479he Role of Trade Policies and Institutions," IMF Working Papers 07/55, International Monetary Fund.
    9. Murshed, Syed Mansoob & Serino, Leandro Antonio, 2011. "The pattern of specialization and economic growth: The resource curse hypothesis revisited," Structural Change and Economic Dynamics, Elsevier, vol. 22(2), pages 151-161, June.
    10. Syed Mansoob Murshed & Mohammad Zulfan Tadjoeddin, 2009. "Revisiting the greed and grievance explanations for violent internal conflict," Journal of International Development, John Wiley & Sons, Ltd., vol. 21(1), pages 87-111.
    11. Nir Klein, 2010. "The Linkage between the Oil and Non-oil Sectors," IMF Working Papers 10/118, International Monetary Fund.
    12. Mohsen Mehrara, Mohsen & Alhosseini, Seyedmohammadsadegh & Bahramirad, Duman, 2008. "Resource curse and institutional quality in oil countries," MPRA Paper 16456, University Library of Munich, Germany, revised Mar 2009.
    13. Eisgruber, Lasse, 2013. "The resource curse: Analysis of the applicability to the large-scale export of electricity from renewable resources," Energy Policy, Elsevier, vol. 57(C), pages 429-440.
    14. Daniel Lederman & William F. Maloney, 2012. "Does What You Export Matter? In Search of Empirical Guidance for Industrial Policies," World Bank Publications, The World Bank, number 9371, February.
    15. Kurronen, Sanna, 2012. "Financial sector in resource-dependent economies," BOFIT Discussion Papers 6/2012, Bank of Finland, Institute for Economies in Transition.

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