An Introduction to Empiric Approach to the Resource Curse Phenomenon in Small Island Developing States (SIDS)

The dependence on natural resources exports and its effects on economic growth represent one of the fields of study in political economy. This paper represents an empiric analysis of sets of macroeconomic data for several Small Island Developing States (SIDS). Data was analyzed for Bahrain, Barbados, and the Dominican Republic. This paper searches for the potential mechanism of transmission of the resource curse. The countries, which were selected, are dependent upon either tourism as a source of revenue, natural resources or are to a degree dependent upon both. In order to avoid potential problems from using cross-section data, individual time-series analysis methods were used. By using a Vector Autoregressive framework, this paper concludes that there is evidence of both direct transmission from natural capital towards economic growth, as well as indirect transmission through political instability and increased level of corruption. These findings are overall conclusive with the previous works discussing the research curse hypothesis. The key policy recommendation is ensuring that funds obtained from the exploiting of resources or tourism are used to develop a more stable and long-term sustainable economy.