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Natural-Resource Wealth: Elbow Grease or Fuel for Poverty?

  • Nisreen Salti

We consider the effect of natural resources on growth using a two-sector model (resource and nonresource). Government taxes the nonresource sector and chooses institutional quality, which determines productivity in the nonresource sector and the government's ability to appropriate resource rents. We find that resource booms harm institutions. Their effect on growth depends on relative sector sizes: when rents are more substantial, governments are likelier to corrupt institutions to secure larger shares of rents. Cross-country panel data substantiate the results: countries in the bottom tercile of value added in manufacturing and services divided by GDP are cursed by resources; others are blessed.

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Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 167 (2011)
Issue (Month): 3 (September)
Pages: 536-556

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201109)167:3_536:nwegof_2.0.tx_2-p
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  1. Elissaios Papyrakis & Reyer Gerlagh, 2003. "Natural Resources: A Blessing or a Curse?," Working Papers 2003.8, Fondazione Eni Enrico Mattei.
  2. Halvor Mehlum & Karl Moene & Ragnar Torvik, 2004. "Institutions and the Resource Curse," DEGIT Conference Papers c009_012, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Pedro DalBo & Ernesto DalBo, 2004. "Workers, Warriors and Criminals: Social Conflict in General Equilibrium," Working Papers 2004-11, Brown University, Department of Economics.
  4. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
  5. Easterly, William, 1999. "Life during Growth," Journal of Economic Growth, Springer, vol. 4(3), pages 239-76, September.
  6. Roland Hodler, 2004. "The Curse of Natural Resources in Fractionalized Countries," Diskussionsschriften dp0404, Universitaet Bern, Departement Volkswirtschaft.
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