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Oil Greasing the Wheels: When Do Natural Resources Become a Blessing?

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  • Nisreen Salti

    (American University of Beirut)

Abstract

This paper considers theoretically and empirically natural resources’ effect on growth using a two sector-model (resource and non-resource). Governments tax the non-resource sector and choose institutional quality, which determines productivity in the non-resource sector and the governments’ ability to appropriate resource rents. Resource booms harm institutions. Their effect on growth depends on relative sector sizes: when rents are relatively substantial, governments incur the cost of corrupting institutions and the loss of taxes from the non-resource sector for a bigger share of rents. The results are confirmed using cross-country panel data: countries in the bottom quintile of the manufacturing-share of value-added are cursed by resources, other countries are blessed.

Suggested Citation

  • Nisreen Salti, 2008. "Oil Greasing the Wheels: When Do Natural Resources Become a Blessing?," Working Papers 439, Economic Research Forum, revised 09 Jan 2008.
    • Handle: RePEc:erg:wpaper:439
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    References listed on IDEAS

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    Cited by:

    1. Hoda Selim & Chahir Zaki, 2014. "The Institutional Curse of Natural Resources in the Arab World," Working Papers 890, Economic Research Forum, revised Dec 2014.
    2. Klaus Schmidt-Hebbel, 2012. "Fiscal Institutions in Resource-Rich Economies: Lessons from Chile and Norway," Working Papers 682, Economic Research Forum, revised 2012.
    3. Ahmed Galal & Hoda Selim, 2013. "The Elusive Quest for Economic Development in the Arab Countries," Middle East Development Journal, Taylor & Francis Journals, vol. 5(1), pages 1350002-131, January.
    4. Magda Kandil & Nazire Nergiz Dincer, 2007. "A Comparative Analysis of Exchange Rate Fluctuations and Economic Activity: The Cases of Egypt and Turkey," Working Papers 722, Economic Research Forum, revised 01 Jan 2007.

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