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


  • Nisreen Salti

    () (American University of Beirut)


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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    9. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2005. "Governance matters IV : governance indicators for 1996-2004," Policy Research Working Paper Series 3630, The World Bank.
    10. Easterly, William, 1999. "Life during Growth," Journal of Economic Growth, Springer, vol. 4(3), pages 239-276, September.
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    Cited by:

    1. Klaus Schmidt-Hebbel, 2012. "Fiscal Institutions in Resource-Rich Economies: Lessons from Chile and Norway," Documentos de Trabajo 416, Instituto de Economia. Pontificia Universidad Católica de Chile..
    2. Magda Kandil & Nazire Nergiz Dincer, 2008. "A comparative analysis of exchange rate fluctuations and economic activity: The cases of Egypt and Turkey," International Journal of Development Issues, Emerald Group Publishing, vol. 7(2), pages 136-159, October.
    3. Hoda Selim & Chahir Zaki, 2014. "The Institutional Curse of Natural Resources in the Arab World," Working Papers 890, Economic Research Forum, revised Dec 2014.

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