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Is the 'Curse of Natural Resources' Really a Curse?

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  • Pietro F. Peretto

Abstract

This paper takes a new look at the long-run implications of resource abundance. Using a Schumpeterian growth model that yields an analytical solution for the transition path, it derives conditions under which the curse of natural resources occurs and is in fact a curse, meaning that welfare falls, conditions under which it occurs but it is not a curse, meaning that growth slows down but welfare rises nevertheless, and conditions under which it does not occur at all. An effective way to summarize the results is to picture growth and welfare as hump-shaped functions of resource abundance. The property that the peak of growth occurs earlier than the peak of welfare captures the crucial role of initial consumption, which rises with resource abundance, and is an important reminder that the welfare effect of resource abundance depends on the whole path of consumption, not on a summary statistic of its slope. Growth regressions that ignore the endogeneity of initial income do not provide sufficient information to assess whether resource abundance is bad even if one could prove beyond reasonable doubt that the relation is indeed negative and causal. Recent evidence that the correlation is actually positive should make us even more skeptical of policy advice based on the curse logic.

Suggested Citation

  • Pietro F. Peretto, 2010. "Is the 'Curse of Natural Resources' Really a Curse?," Working Papers 10-18, Duke University, Department of Economics.
    • Handle: RePEc:duk:dukeec:10-18
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    Cited by:

    1. Karen Pittel & Lucas Bretschger, 2010. "The implications of heterogeneous resource intensities on technical change and growth," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(4), pages 1173-1197, November.
    2. Madsen, Jakob B., 2010. "The anatomy of growth in the OECD since 1870," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 753-767, September.
    3. Pietro Peretto & Simone Valente, 2015. "Growth on a finite planet: resources, technology and population in the long run," Journal of Economic Growth, Springer, vol. 20(3), pages 305-331, September.
    4. William F. Maloney & Daniel Lederman, 2008. "In search of the Missing Resource Curse," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2008), pages 1-57, August.
    5. Lopez, Ramon E. & Stocking, Andrew, 2009. "Bringing Growth Theory "Down to Earth"," Working Papers 48944, University of Maryland, Department of Agricultural and Resource Economics.

    More about this item

    Keywords

    Endogenous Growth; Endogenous Technological Change; Curse of Natural Resources;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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