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Can the Natural Resource Curse Be Turned Into a Blessing? T+L3479he Role of Trade Policies and Institutions

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  • Rabah Arezki
  • Frederik van der Ploeg

Abstract

We criticize 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 techniques to correct for the endogenous nature of the explanatory variables. Furthermore, they suffer from omitted variables bias as they overestimate the effect of initial income per capita and thus underestimate 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 a 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 International Monetary Fund in its series IMF Working Papers with number 07/55.

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Length: 34
Date of creation: 01 Mar 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/55

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Keywords: Capital; Economic growth; Trade policy; natural resource; natural resource curse; natural resource revenues; natural resources; natural resource abundance; lead; forest resources; protected areas;

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References

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Cited by:
  1. Malebogo Bakwena & Philip Bodman & Thanh Le & KK Tang, . "Avoiding the Resource Curse: The Role of Institutions," MRG Discussion Paper Series, School of Economics, University of Queensland, Australia 3209, School of Economics, University of Queensland, Australia.
  2. 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, Chung-Ang Unviersity, Department of Economics, vol. 37(4), pages 29-60, December.
  3. Paul Collier & Benedikt Goderis, 2007. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," Economics Series Working Papers, University of Oxford, Department of Economics WPS/2007-15, University of Oxford, Department of Economics.
  4. Ibrahim Ahmed Elbadawi & Raimundo Soto, 2012. "Resource Rents, Political Institutions and Economic Growth," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 413, Instituto de Economia. Pontificia Universidad Católica de Chile..
  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. 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, C.E.P.R. Discussion Papers 7021, C.E.P.R. Discussion Papers.
  7. Idrobo Nicolás & Mejía Daniel & Tribin Ana María, 2014. "Illegal Gold Mining and Violence in Colombia," Peace Economics, Peace Science, and Public Policy, De Gruyter, De Gruyter, vol. 20(1), pages 83-111, January.
  8. 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.
  9. Naude, Wim, 2008. "Conflict, Disasters, and No Jobs: Reasons for International Migration from Sub-Saharan Africa," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2008/85, World Institute for Development Economic Research (UNU-WIDER).
  10. Paul Collier & Frederick van der Ploeg & Michael Spence & Anthony J Venables, 2009. "Managing Resource Revenues in Developing Economies," OxCarre Working Papers, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford 015, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  11. 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.
  12. Stela Cani, 2009. "Resource Abundance, Mineral Funds and Institutional Quality," Economics & Management Discussion Papers, Henley Business School, Reading University em-dp2009-04, Henley Business School, Reading University.
  13. Naude, Wim & Rossouw, Riaan, 2008. "Export Diversification and Specialization in South Africa: Extent and Impact," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2008/93, World Institute for Development Economic Research (UNU-WIDER).

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