IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/101138.html
   My bibliography  Save this paper

Oil Curse

Author

Listed:
  • Majumderad, Monoj Kumar
  • Raghavan, Mala
  • Vespignani, Joaquin

Abstract

An important economic paradox in the economic literature is that countries with abundant natural resources are poor in terms of real gross domestic product per capita. This paradox, known as the ‘resource curse’, is contrary to the conventional intuition that natural resources help to improve economic growth and prosperity. Using panel data for 95 countries, this study revisits the resource curse paradox in terms of oil resources abundance for the period 1980–2017. In addition, the study examines the role of trade openness in influencing the relationship between oil abundance and economic growth. The study finds trade openness is a possible avenue to reduce the resource curse, in our sample, trade openness reduces oil curse by around 25%. Trade openness allows countries to obtain competitive prices for their resources in the international market and access advanced technologies to extract resources more efficiently. Therefore, natural resource–rich economies can reduce the resource curse by increasing exposure to international trade.

Suggested Citation

  • Majumderad, Monoj Kumar & Raghavan, Mala & Vespignani, Joaquin, 2020. "Oil Curse," MPRA Paper 101138, University Library of Munich, Germany, revised 2020.
    • Handle: RePEc:pra:mprapa:101138
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/101138/1/MPRA_paper_101138.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Halvor Mehlum & Karl Moene & Ragnar Torvik, 2006. "Institutions and the Resource Curse," Economic Journal, Royal Economic Society, vol. 116(508), pages 1-20, January.
    2. Markus Brueckner & Era Dabla Norris & Mark Gradstein, 2015. "National income and its distribution," Journal of Economic Growth, Springer, vol. 20(2), pages 149-175, June.
    3. Bhattacharyya, Sambit & Hodler, Roland, 2010. "Natural resources, democracy and corruption," European Economic Review, Elsevier, vol. 54(4), pages 608-621, May.
    4. Andersen, Thomas Barnebeck & Barslund, Mikkel & Hansen, Casper Worm & Harr, Thomas & Jensen, Peter Sandholt, 2014. "How much did China's WTO accession increase economic growth in resource-rich countries?," China Economic Review, Elsevier, vol. 30(C), pages 16-26.
    5. Matias Braun & Claudio Raddatz, 2008. "The Politics of Financial Development: Evidence from Trade Liberalization," Journal of Finance, American Finance Association, vol. 63(3), pages 1469-1508, June.
    6. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc.
    7. Antonakakis, Nikolaos & Cunado, Juncal & Filis, George & Gracia, Fernando Perez de, 2017. "Oil dependence, quality of political institutions and economic growth: A panel VAR approach," Resources Policy, Elsevier, vol. 53(C), pages 147-163.
    8. Hodler, Roland, 2006. "The curse of natural resources in fractionalized countries," European Economic Review, Elsevier, vol. 50(6), pages 1367-1386, August.
    9. Masih, Rumi & Peters, Sanjay & De Mello, Lurion, 2011. "Oil price volatility and stock price fluctuations in an emerging market: Evidence from South Korea," Energy Economics, Elsevier, vol. 33(5), pages 975-986, September.
    10. George Mavrotas & Syed Mansoob Murshed & Sebastian Torres, 2011. "Natural Resource Dependence and Economic Performance in the 1970–2000 Period," Review of Development Economics, Wiley Blackwell, vol. 15(1), pages 124-138, February.
    11. Marc F. Bellemare & Christopher B. Barrett & David R. Just, 2013. "The Welfare Impacts of Commodity Price Volatility: Evidence from Rural Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(4), pages 877-899.
    12. Anne D. Boschini & Jan Pettersson & Jesper Roine, 2007. "Resource Curse or Not: A Question of Appropriability," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(3), pages 593-617, September.
    13. Goldstein, Judith L. & Rivers, Douglas & Tomz, Michael, 2007. "Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade," International Organization, Cambridge University Press, vol. 61(1), pages 37-67, January.
    14. Henriques, Irene & Sadorsky, Perry, 2011. "The effect of oil price volatility on strategic investment," Energy Economics, Elsevier, vol. 33(1), pages 79-87, January.
    15. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-380, November.
    16. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
    17. Bjorvatn, Kjetil & Farzanegan, Mohammad Reza & Schneider, Friedrich, 2012. "Resource Curse and Power Balance: Evidence from Oil-Rich Countries," World Development, Elsevier, vol. 40(7), pages 1308-1316.
    18. Auty, R. & Warhurst, A., 1993. "Sustainable development in mineral exporting economies," Resources Policy, Elsevier, vol. 19(1), pages 14-29, March.
    19. Mona Haddad & Jamus Jerome Lim & Cosimo Pancaro & Christian Saborowski, 2013. "Trade openness reduces growth volatility when countries are well diversified," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(2), pages 765-790, May.
    20. Arezki, Rabah & Brückner, Markus, 2012. "Commodity windfalls, polarization, and net foreign assets: Panel data evidence on the voracity effect," Journal of International Economics, Elsevier, vol. 86(2), pages 318-326.
    21. Roger D. Congleton & Arye L. Hillman (ed.), 2015. "Companion to the Political Economy of Rent Seeking," Books, Edward Elgar Publishing, number 15325.
    22. Pushan Dutt, 2009. "Trade protection and bureaucratic corruption: an empirical investigation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 42(1), pages 155-183, February.
    23. Parcero, Osiris J. & Papyrakis, Elissaios, 2016. "Income inequality and the oil resource curse," Resource and Energy Economics, Elsevier, vol. 45(C), pages 159-177.
    24. Fum, Ruikang Marcus & Hodler, Roland, 2010. "Natural resources and income inequality: The role of ethnic divisions," Economics Letters, Elsevier, vol. 107(3), pages 360-363, June.
    25. Antonakakis, Nikolaos & Cunado, Juncal & Filis, George & Gabauer, David & Perez de Gracia, Fernando, 2018. "Oil volatility, oil and gas firms and portfolio diversification," Energy Economics, Elsevier, vol. 70(C), pages 499-515.
    26. Pushan Dutt, 2009. "Trade protection and bureaucratic corruption: an empirical investigation," Canadian Journal of Economics, Canadian Economics Association, vol. 42(1), pages 155-183, February.
    27. Jonathan Isham & Michael Woolcock & Lant Pritchett & Gwen Busby, 2005. "The Varieties of Resource Experience: Natural Resource Export Structures and the Political Economy of Economic Growth," The World Bank Economic Review, World Bank, vol. 19(2), pages 141-174.
    28. Michael Tomz & Judith L. Goldstein & Douglas Rivers, 2007. "Do We Really Know That the WTO Increases Trade? Comment," American Economic Review, American Economic Association, vol. 97(5), pages 2005-2018, December.
    29. Rabah Arezki & Frederick van der Ploeg, 2011. "Do Natural Resources Depress Income Per Capita?," Review of Development Economics, Wiley Blackwell, vol. 15(3), pages 504-521, August.
    30. Powdthavee, Nattavudh & Wooden, Mark, 2015. "Life satisfaction and sexual minorities: Evidence from Australia and the United Kingdom," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 107-126.
    31. Collier, Paul & Goderis, Benedikt, 2008. "Commodity Prices, Growth, and the Natural Resource Curse: Reconciling a Conundrum," MPRA Paper 17315, University Library of Munich, Germany.
    32. David de Ferranti & Guillermo E. Perry & Daniel Lederman & William E. Maloney, 2002. "From Natural Resources to the Knowledge Economy : Trade and Job Quality," World Bank Publications - Books, The World Bank Group, number 14040, December.
    33. Alexandra Dwyer & George Gardner & Thomas Williams, 2011. "Global Commodity Markets - Price Volatility and Financialisation," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 49-58, June.
    34. Arezki, Rabah & Brückner, Markus, 2011. "Oil rents, corruption, and state stability: Evidence from panel data regressions," European Economic Review, Elsevier, vol. 55(7), pages 955-963.
    35. Ratti, Ronald A. & Vespignani, Joaquin L., 2016. "Oil prices and global factor macroeconomic variables," Energy Economics, Elsevier, vol. 59(C), pages 198-212.
    36. Atsushi Iimi, 2007. "Escaping from the Resource Curse: Evidence from Botswana and the Rest of the World," IMF Staff Papers, Palgrave Macmillan, vol. 54(4), pages 663-699, November.
    37. Brendan Coates & Nghi Luu, 2012. "China's emergence in global commodity markets," Economic Roundup, The Treasury, Australian Government, issue 1, pages 1-30, May.
    38. Papyrakis, Elissaios & Gerlagh, Reyer, 2007. "Resource abundance and economic growth in the United States," European Economic Review, Elsevier, vol. 51(4), pages 1011-1039, May.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Majumder, Monoj Kumar & Raghavan, Mala & Vespignani, Joaquin, 2020. "Oil curse, economic growth and trade openness," Energy Economics, Elsevier, vol. 91(C).
    2. Lotfalipour, Mohammad Reza & sargolzaie, Ali & Salehnia, Narges, 2022. "Natural resources: A curse on welfare?," Resources Policy, Elsevier, vol. 79(C).
    3. Badeeb, Ramez Abubakr & Lean, Hooi Hooi & Clark, Jeremy, 2017. "The evolution of the natural resource curse thesis: A critical literature survey," Resources Policy, Elsevier, vol. 51(C), pages 123-134.
    4. Cockx, Lara & Francken, Nathalie, 2016. "Natural resources: A curse on education spending?," Energy Policy, Elsevier, vol. 92(C), pages 394-408.
    5. Pérez, Claudia & Claveria, Oscar, 2020. "Natural resources and human development: Evidence from mineral-dependent African countries using exploratory graphical analysis," Resources Policy, Elsevier, vol. 65(C).
    6. Frankel, Jeffrey A., 2012. "The Natural Resource Curse: A Survey of Diagnoses and Some Prescriptions," Scholarly Articles 8694932, Harvard Kennedy School of Government.
    7. Dong-Hyeon Kim & Shu-Chin Lin, 2017. "Natural Resources and Economic Development: New Panel Evidence," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(2), pages 363-391, February.
    8. Chi-Swian Wong, 2021. "Science Mapping: A Scientometric Review on Resource Curses, Dutch Diseases, and Conflict Resources during 1993–2020," Energies, MDPI, vol. 14(15), pages 1-48, July.
    9. Alssadek, Marwan & Benhin, James, 2023. "Natural resource curse: A literature survey and comparative assessment of regional groupings of oil-rich countries," Resources Policy, Elsevier, vol. 84(C).
    10. Dauvin, Magali & Guerreiro, David, 2017. "The Paradox of Plenty: A Meta-Analysis," World Development, Elsevier, vol. 94(C), pages 212-231.
    11. Frankel, Jeffrey A., 2010. "The Natural Resource Curse: A Survey," Scholarly Articles 4454156, Harvard Kennedy School of Government.
    12. Ruba A. Aljarallah & Andrew Angus, 2020. "Dilemma of Natural Resource Abundance: A Case Study of Kuwait," SAGE Open, , vol. 10(1), pages 21582440198, January.
    13. Frederick van der Ploeg, 2011. "Natural Resources: Curse or Blessing?," Journal of Economic Literature, American Economic Association, vol. 49(2), pages 366-420, June.
    14. Rian Hilmawan & Jeremy Clark, 2021. "Resource dependence and the causes of local economic growth: An empirical investigation," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 65(3), pages 596-626, July.
    15. Chandan Sharma & Debdatta Pal, 2021. "Revisiting resource curse puzzle: new evidence from heterogeneous panel analysis," Applied Economics, Taylor & Francis Journals, vol. 53(8), pages 897-912, February.
    16. Badeeb, Ramez Abubakr & Szulczyk, Kenneth R. & Zahra, Samia & Mukherjee, Tanusree Chakravarty, 2023. "Innovation dynamics in the natural resource curse hypothesis: A new perspective from BRICS countries," Resources Policy, Elsevier, vol. 81(C).
    17. Bildirici, Melike E. & Gokmenoglu, Seyit M., 2020. "Precious metal abundance and economic growth: Evidence from top precious metal producer countries," Resources Policy, Elsevier, vol. 65(C).
    18. Dauvin, Magali & Guerreiro, David, 2017. "The Paradox of Plenty: A Meta-Analysis," World Development, Elsevier, vol. 94(C), pages 212-231.
    19. Cockx, Lara & Francken, Nathalie, 2014. "Extending the concept of the resource curse: Natural resources and public spending on health," Ecological Economics, Elsevier, vol. 108(C), pages 136-149.
    20. Asongu, Simplice A & Odhiambo, Nicholas M, 2023. "Governance quality and trade performance in Sub-Saharan Africa," Working Papers 29697, University of South Africa, Department of Economics.

    More about this item

    Keywords

    Oil Course; Economic Growth; Trade Openness;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:101138. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.