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Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum

  • Paul Collier
  • Benedikt Goderis

Currently, evidence on the 'resource curse' yields a conundrum.� While there is much cross-section evidence to support the curse hypothesis, time series analyses using vector autoregressive (VAR) models have found that commodity booms raise the growth of commodity exporters.� This paper adopts panel cointegration methodology to explore longer term effects than permitted using VARs.� We find strong evidence of a resource curse.� Commodity booms have positive short-term effects on output, but adverse long-term effects.� The long-term effects are confined to "high-rent", non-agricultural commodities.� We also find that the resource curse is avoided by countries with sufficiently good institutions.� We test the channels of the resource curse proposed in the literature and find that a substantial part of it is explained by high public and private consumption, low or inefficient total investment, and an overvalued exchange rate.� Our results fully account for the cross-section results in the seminal paper by Sachs and Warner (1995).

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/2007-15.

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Date of creation: 01 Aug 2007
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Handle: RePEc:oxf:wpaper:wps/2007-15
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