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Can the Natural Resource Curse Be Turned into a Blessing? The Role of Trade Policies and Institutions

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  • Rabah Arezki
  • Frederick van der Ploeg

Abstract

We criticise existing empirical results on the detrimental effects of natural resource dependence on the rate of economic growth after controlling for institutional quality, openness and initial income. These results do not survive once we use instrumental variables to correct for the endogenous nature of the explanatory variables. Furthermore, they suffer from omitted variables bias as they over-estimate the effect of initial income per capita and thus under-estimate the speed of conditional convergence. Instead, we provide new evidence for the impact of natural resource dependence on income per capita in a systematic empirical cross-country framework. In addition to a significant negative direct impact of natural resources on income per capita, we find significant indirect effect of natural resources on institutions. We allow for interaction effects and provide evidence that the natural resource curse is particularly severe for economic performance in countries with a low degree of trade openness. Adopting policies directed toward more trade openness may thus soften the impact of a resource curse. We also check the robustness of our results by using a variety of instruments and also employing the ratio of natural capital rather than natural resource exports to national income as an explanatory variable. We find evidence that resource abundance, measured by the stock of natural capital, also induces a resource curse, but less severely for countries that are relatively open.

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Bibliographic Info

Paper provided by European University Institute in its series Economics Working Papers with number ECO2007/35.

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Date of creation: 2007
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Handle: RePEc:eui:euiwps:eco2007/35

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Keywords: resource curse; resource dependence; resource abundance; natural capital; institutional quality; openness; geography; interaction effects; instruments; trade policies; growth performance; income per capita; cross-country evidence;

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References

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Citations

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Cited by:
  1. van der Ploeg, Frederick, 2008. "Why Do Many Resource-Rich Countries Have Negative Genuine Saving? Anticipation of Better Times or Rapacious Rent Seeking," CEPR Discussion Papers 7021, C.E.P.R. Discussion Papers.
  2. Paul Collier & Benedikt Goderis, 2007. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," Economics Series Working Papers WPS/2007-15, University of Oxford, Department of Economics.
  3. Malebogo Bakwena & Philip Bodman & Thanh Le & KK Tang, . "Avoiding the Resource Curse: The Role of Institutions," MRG Discussion Paper Series 3209, School of Economics, University of Queensland, Australia.
  4. Thanh Le & Cuong Le Van, 2014. "Natural Resources, R&D and Economic Growth," Working Papers 2014-112, Department of Research, Ipag Business School.
  5. Ibrahim Ahmed Elbadawi & Raimundo Soto, 2012. "Resource Rents, Political Institutions and Economic Growth," Documentos de Trabajo 413, Instituto de Economia. Pontificia Universidad Católica de Chile..
  6. 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.
  7. Naude, Wim, 2008. "Conflict, Disasters, and No Jobs: Reasons for International Migration from Sub-Saharan Africa," Working Paper Series RP2008/85, World Institute for Development Economic Research (UNU-WIDER).
  8. Jiří Sýkora, 2013. "Oil in Timor-Leste: A Ticket to Prosperity?," Acta Oeconomica Pragensia, University of Economics, Prague, vol. 2013(3), pages 68-85.
  9. Frances N Obafemi & Uchechi R Ogbuagu & Emmanuel Nathan, 2013. "Petroleum Resource, institutions and economic growth in Nigeria," Journal of Business & Management (COES&RJ-JBM), , vol. 1(3), pages 154-165, July.
  10. Paul Collier & Frederick van der Ploeg & Michael Spence & Anthony J Venables, 2009. "Managing Resource Revenues in Developing Economies," OxCarre Working Papers 015, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  11. Go, Delfin S. & Robinson, Sherman & Thierfelder, Karen & Utz, Robert, 2013. "Dutch disease and spending strategies in a resource-rich low-income country -- the case of Niger," Policy Research Working Paper Series 6691, The World Bank.
  12. Naude, Wim & Rossouw, Riaan, 2008. "Export Diversification and Specialization in South Africa: Extent and Impact," Working Paper Series RP2008/93, World Institute for Development Economic Research (UNU-WIDER).
  13. Boschini, Anne & Pettersson, Jan & Roine, Jesper, 2012. "The Resource Curse and its Potential Reversal," Working Paper Series 2012:17, Uppsala University, Department of Economics.
  14. Khalid R. Alkhater, 2012. "The Rentier Predatory State Hypothesis: An Empirical Explanation Of The Resource Curse," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(4), pages 29-60, December.
  15. Leong, W. & Mohaddes, K., 2011. "Institutions and the Volatility Curse," Cambridge Working Papers in Economics 1145, Faculty of Economics, University of Cambridge.
  16. Hostland, Douglas & Giugale, Marcelo M., 2013. "Africa's macroeconomic story," Policy Research Working Paper Series 6635, The World Bank.
  17. repec:rdg:emxxdp:em-dp2009-04 is not listed on IDEAS

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