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Institutions and the Volatility Curse

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  • Leong, W.
  • Mohaddes, K.

Abstract

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.

Suggested Citation

  • Leong, W. & Mohaddes, K., 2011. "Institutions and the Volatility Curse," Cambridge Working Papers in Economics 1145, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1145
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    Cited by:

    1. Kaznacheev, Peter, 2013. "Resource Rents and Economic Growth," Published Papers kazn01, Russian Presidential Academy of National Economy and Public Administration.
    2. Bjørnland, Hilde C. & Thorsrud, Leif Anders & Torvik, Ragnar, 2019. "Dutch disease dynamics reconsidered," European Economic Review, Elsevier, vol. 119(C), pages 411-433.
    3. Jarrett, Uchechukwu & Mohaddes, Kamiar & Mohtadi, Hamid, 2019. "Oil price volatility, financial institutions and economic growth," Energy Policy, Elsevier, vol. 126(C), pages 131-144.
    4. Doroshenko Svetlana Viktorovna & Shelomentsev Andrey Gennadyevich & Sirotkina Natalya Valeryevna & Khusainov Bulat Doskalievich, 2014. "Paradoxes of the «Natural resource curse» regional development in the post-soviet space," Экономика региона, CyberLeninka;Федеральное государственное бюджетное учреждение науки «Институт экономики Уральского отделения Российской академии наук», issue 4, pages 81-93.
    5. Kamiar Mohaddes & M. Hashem Pesaran, 2013. "One Hundred Years of Oil Income and the Iranian Economy: A Curse or a Blessing?," Working Papers 771, Economic Research Forum, revised Sep 2013.
    6. Burney, Nadeem A. & Mohaddes, Kamiar & Alawadhi, Ahmad & Al-Musallam, Marwa, 2018. "The dynamics and determinants of Kuwait's long-run economic growth," Economic Modelling, Elsevier, vol. 71(C), pages 289-304.
    7. Sidi Mohammed Chekouri & Abderrahim Chibi & Mohamed Benbouziane, 2017. "Algeria and the natural resource curse: oil abundance and economic growth," Middle East Development Journal, Taylor & Francis Journals, vol. 9(2), pages 233-255, July.
    8. Veysel ULUSOY & Cumhur TAŞ, 2017. "On the effects of total productivity growth of economic freedom and total resource rents: The case of both natural resource rich and OECD countries," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(612), A), pages 173-192, Autumn.
    9. 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.
    10. Chibi Abderrahim & Chekouri Sidi Mohamed & Benbouziane Mohamed, 2019. "The Impact of Fiscal Policy on Economic Activity over the Business Cycle: An Empirical Investigation in the Case of Algeria," Review of Middle East Economics and Finance, De Gruyter, vol. 15(3), pages 1-23, December.
    11. Robinson, James A. & Torvik, Ragnar & Verdier, Thierry, 2017. "The political economy of public income volatility: With an application to the resource curse," Journal of Public Economics, Elsevier, vol. 145(C), pages 243-252.
    12. Rahmati, Mohammad H. & Karimirad, Ali, 2017. "Subsidy and natural resource curse: Evidence from plant level observations in Iran," Resources Policy, Elsevier, vol. 52(C), pages 90-99.
    13. Hui Hu & Weijun Ran & Yuchen Wei & Xiang Li, 2020. "Do Energy Resource Curse and Heterogeneous Curse Exist in Provinces? Evidence from China," Energies, MDPI, Open Access Journal, vol. 13(17), pages 1-25, August.
    14. Craig Richardson, 2016. "What the Law of Comparative Advantage Misses in Africa: A New Measure of Economic Complexity," Proceedings of Economics and Finance Conferences 3205763, International Institute of Social and Economic Sciences.
    15. Amany El-Anshasy & Kamiar Mohaddes & Jeffrey B. Nugent, 2015. "Oil, Volatility and Institutions:Cross-Country Evidence from Major Oil Producers," Cambridge Working Papers in Economics 1523, Faculty of Economics, University of Cambridge.
    16. Najm, Sarah, 2019. "The green paradox and budgetary institutions," Energy Policy, Elsevier, vol. 133(C).
    17. Kaznacheev, Peter, 2013. "Resource Rents and Economic Growth: Economic and institutional development in countries with a high share of income from the sale of natural resources. Analysis and recommendations based on internatio," EconStor Research Reports 121950, ZBW - Leibniz Information Centre for Economics.

    More about this item

    Keywords

    Economic growth; resource curse; institutions; resource rent; and commodity price volatility.;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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