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Mechanisms of Resource Curse and Economic Policy

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  • V. POLTEROVICH
  • V. POPOV
  • A. TONIS.

Abstract

This paper compares various mechanisms of resource curse leading to a potentially inefficient use of resources; it is demonstrated that each of these mechanisms is associated with market imperfections and can be «corrected» with appropriate government policies. Empirical evidence seems to suggest that resource abundant countries have on average lower budget deficits and inflation, and higher foreign exchange reserves. Besides, lower domestic fuel prices that are typical for resource rich countries have a positive effect on long-term growth even though they are associated with losses resulting from higher energy consumption. On top of that resource abundance allows to reduce income inequalities. So, on the one hand, resource wealth turns out to be conducive to growth, especially in countries with strong institutions. However, on the other hand, resource abundance leads to corruption of institutions and to overvalued real exchange rates. On balance, there is no solid evidence that resource abundant countries grow more slowly than the others, but there is evidence that they grow more slowly than could have grown with the right policies and institutions.

Suggested Citation

  • V. Polterovich & V. Popov & A. Tonis., 2007. "Mechanisms of Resource Curse and Economic Policy," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 6.
  • Handle: RePEc:nos:voprec:2007-06-1
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    Cited by:

    1. Svetlana Doroshenko & Andrey Shelomentsev & Natalja Sirotkina & Bulat Husainov, 2014. "Paradoxes Of The «Natural Resource Curse» Regional Development In The Post-Soviet Space," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, pages 81-93.
    2. Polterovich, V., 2015. "On the Formation of National Planning System in Russia," Journal of the New Economic Association, New Economic Association, vol. 26(2), pages 237-242.

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