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Growth, Development and Natural Resources: New Evidence Using a Heterogeneous Panel Analysis

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  • Cavalcanti, T.V.V.
  • Mohaddes, K.
  • Raissi, M.

Abstract

This paper explores whether natural resource abundance is a curse or a blessing. In order to do so, we firstly develop a theory consistent econometric model, in which we show that there is a long run relationship between real income, the investment rate, and the real value of oil production. Secondly, we investigate the long-run (level) effects of natural resource abundance on domestic output as well as the short-run (growth) effects. Thirdly, we make use of a non-stationary panel approach which explicitly es- timates the long-run relationships from annual data as opposed to the dynamic and static panel approaches which might in fact estimate the high-frequency relationships. Fourthly, we account for cross-country dependencies that arise potentially from oil price shocks and other unobserved common factors, and allow countries to respond differently to these shocks. Finally, we explicitly recognize that there is a substantial heterogeneity in our sample, consisting of 53 oil exporting and importing countries with annual data between 1980-2006, and adopt the methodology developed by Pesaran (2006) for estimation. This approach considers different dynamics for each country and is consistent under both cross-sectional dependence and cross-country heterogeneity. We also check the robustness of these results by using the fully modified OLS method of Pedroni (2000). Our non-stationary approach also allows for country-specific unobserved factors, such as social and human capital, to be captured in the fixed effects and the heterogeneous trends together with any omitted factors. Our estimation results, using the real value of oil production, rent or reserves as a proxy for resource endowment, indicate that oil abundance is in fact a blessing and not a curse, exhibited through both the long-run and the short-run effects.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0946.

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Date of creation: 13 Nov 2009
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Handle: RePEc:cam:camdae:0946

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Related research

Keywords: Growth models; natural resource curse; cointegration; cross sectional dependence; common correlated effects; and oil.;

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Citations

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Cited by:
  1. Kjurchiski, Nikola, . "Public Administration Efficiency in Resource Economies," Published Papers nvg128, Russian Presidential Academy of National Economy and Public Administration.
  2. Cavalcanti, T.V.de V. & Mohaddes, K. & Raissi, M., 2011. "Commodity Price Volatility and the Sources of Growth," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1112, Faculty of Economics, University of Cambridge.
  3. Markus Eberhardt & Christian Helmers & Hubert Strauss, . "Do Spillovers Matter When Estimating Private Returns to R&D?," Discussion Papers 11/22, University of Nottingham, GEP.
  4. Francis Teal & Markus Eberhardt, 2009. "Econometrics for Grumblers: A New Look at the Literature on Cross-Country Growth Empirics," Economics Series Working Papers CSAE WPS/2009-07, University of Oxford, Department of Economics.
  5. Leong, W. & Mohaddes, K., 2011. "Institutions and the Volatility Curse," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1145, Faculty of Economics, University of Cambridge.
  6. Hostland, Douglas & Giugale, Marcelo M., 2013. "Africa's macroeconomic story," Policy Research Working Paper Series 6635, The World Bank.
  7. Cashin, P. & Mohaddes, K. & Raissi, M., 2012. "The Global Impact of the Systemic Economies and MENA Business Cycles," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1250, Faculty of Economics, University of Cambridge.
  8. Kamiar Mohaddes & M. Hashem Pesaran, 2013. "One Hundred Years of Oil Income and the Iranian Economy: A Curse or a Blessing?," CESifo Working Paper Series 4118, CESifo Group Munich.
  9. Delwar Hossain, 2014. "Differential Impacts of Foreign Capital and Remittance Inflows on Domestic Savings in the Developing Countries: A Dynamic Heterogeneous Panel Analysis," Departmental Working Papers, The Australian National University, Arndt-Corden Department of Economics 2014-07, The Australian National University, Arndt-Corden Department of Economics.
  10. International Monetary Fund, 2011. "Oil-Price Boom and Real Exchange Rate Appreciation," IMF Working Papers 11/268, International Monetary Fund.
  11. Paul Cashin & Kamiar Mohaddes & Mehdi Raissi & Maziar Raissi, 2012. "The Differential Effects of Oil Demand and Supply Shocks on the Global Economy," IMF Working Papers 12/253, International Monetary Fund.
  12. Daniel Sakyi & Jose Villaverde & Adolfo Maza & Krishna Reddy Chittedieonardo, 2012. "Trade Openness, Growth and Development: Evidence from Heterogeneous Panel Cointegration Analysis for Middle-Income Countries," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, UN - RCE - CID.
  13. Esfahani, H. S. & Mohaddes, K. & Pesaran, M. H., 2012. "An Empirical Growth Model for Major Oil Exporters," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 1215, Faculty of Economics, University of Cambridge.
  14. Neustroev, Dmitry, 2013. "The Uzawa-Lucas Growth Model with Natural Resources," MPRA Paper 52937, University Library of Munich, Germany.

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