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Mechanisms of Resource Curse, Economic Policy and Growth

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  • Polterovich, Victor
  • Popov, Vladimir
  • Tonis, Alexander

Abstract

This paper analyzes economic policies in resource rich countries and various mechanisms of resource curse leading to a potentially inefficient use of resources. Arguments are provided in favor of "conditional resource curse" hypothesis: resource abundance hampers growth if institutions of a country are weak. We study the impact of the resource abundance on budget deficit and inflation, foreign exchange reserves and real exchange rate, as well as policies of maintaining low domestic fuel and energy prices. We show that lower domestic fuel prices, that are typical for resource rich countries, have a positive effect on investment in R&D and fixed capital stock, and on long term growth, even though they are associated with losses resulting from higher energy intensity. However, in resource rich countries real exchange rate is generally higher than in other countries. Besides, resource abundance leads to corruption of institutions, especially if these institutions were not strong in the beginning of the period. While there is no solid evidence that, on average, resource abundant countries grow more slowly than the others, there is evidence that they use resources less efficiently, if their institutions are weak.

Suggested Citation

  • Polterovich, Victor & Popov, Vladimir & Tonis, Alexander, 2008. "Mechanisms of Resource Curse, Economic Policy and Growth," MPRA Paper 20570, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:20570
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Libman, Alexander, 2010. "Subnational resource curse: do economic or political institutions matter?," Frankfurt School - Working Paper Series 154, Frankfurt School of Finance and Management.
    2. Ofer, Gur, 2010. "Twenty Years Later and the Socialist Heritage is still Kicking: the Case of Russia," WIDER Working Paper Series 059, World Institute for Development Economic Research (UNU-WIDER).
    3. Popov, Vladimir, 2009. "Lessons from the Transition Economies: Putting the Success Stories of the Postcommunist World into a Broader Perspective," WIDER Working Paper Series 015, World Institute for Development Economic Research (UNU-WIDER).
    4. Vladimir Popov, 2010. "Development theories and development experience: half a century journey," Working Papers w0153, Center for Economic and Financial Research (CEFIR).
    5. Vladimir Popov, 2009. "Why the West Became Rich before China and Why China Has Been Catching Up with the West since 1949: nother Explanation of the “Great Divergence” and “Great Convergence” Stories," Working Papers w0132, Center for Economic and Financial Research (CEFIR).
    6. Ahmadov, Ingilab & Mammadov, Jeyhun & Aslanli, Kenan, 2013. "Assessment of Institutional Quality in Resource-Rich Caspian Basin Countries," MPRA Paper 47430, University Library of Munich, Germany.
    7. Christian Dreger & Jarko Fidrmuc, 2009. "Drivers of Exchange Rate Dynamics in Selected CIS Countries: Evidence from a FAVAR Analysis," Discussion Papers of DIW Berlin 867, DIW Berlin, German Institute for Economic Research.
    8. Meissner, Hannes, 2010. "The Resource Curse and Rentier States in the Caspian Region: A Need for Context Analysis," GIGA Working Papers 133, GIGA German Institute of Global and Area Studies.
    9. Jeyhun Mammadov & Assoc. Prof. Dr. Jeyhun Mammadov & Prof. Dr. Ingilab Ahmadov & PhD candidate, Kenan Aslanli, 2013. "Assessment of Institutional Quality in Resource Rich Caspian Basin Countries," International Conference on Energy, Regional Integration and Socio-economic Development 5994, EcoMod.
    10. Popov, Vladimir, 2010. "The Long Road to Normalcy," WIDER Working Paper Series 013, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    resource curse; economic growth; quality of institutions; inflation; industrial policy; lower domestic fuel prices; real exchange rate;

    JEL classification:

    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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