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Institutions and the Volatility Curse

  • Leong, W.
  • Mohaddes, K.

This paper revisits the resource curse paradox and studies the impact of resource rents and their volatility on economic growth under varying institutional quality. Using five-year non-overlapping observations between 1970 and 2005 for 112 countries, we find that while resource rents enhance real output per capita, their volatility exerts a negative impact on economic growth. Therefore, we argue that volatility, rather than abundance per se, drives the resource curse. However, we also find that higher institutional quality can help offset some of the negative volatility effects of resource rents. Therefore, resource abundance can be a blessing provided that growth and welfare enhancing policies and institutions are adopted.

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File URL: http://www.econ.cam.ac.uk/research/repec/cam/pdf/cwpe1145.pdf
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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1145.

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Date of creation: 25 Jul 2011
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Handle: RePEc:cam:camdae:1145
Contact details of provider: Web page: http://www.econ.cam.ac.uk/index.htm

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  18. Krugman, Paul, 1987. "The narrow moving band, the Dutch disease, and the competitive consequences of Mrs. Thatcher : Notes on trade in the presence of dynamic scale economies," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 41-55, October.
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