The Pungent Smell of 'Red Herrings': Subsoil Assets, Rents, Volatility and the Resource Curse
By F. van der ploeg, S. Poelhekke. Social Science Research Network, 2010
368 citations recorded by the source corpus.
Brunnschweiler and Bulte (2008) provide cross-country evidence that the resource curse is a “red herring” once one corrects for endogeneity of resource exports and allows resource abundance affect growth. Their results show that resource exports are no longer significant while the value of subsoil assets has a significant positive effect on growth. But the World Bank measure of subsoil assets is proportional to current rents, and thus also endogenous. Furthermore, their results suffer from an unfortunate data mishap, omitted variables bias, weakness of the instruments, violation of exclusion restrictions and misspecification error. Correcting for these issues and instrumenting resource exports with values of proven reserves at the beginning of the sample period; there is no evidence for the resource curse either and subsoil assets are no longer significant. However, the same evidence suggests that resource exports or rents boost growth in stable countries, but also make especially already volatile countries more volatile and thus indirectly worsen growth prospects. Ignoring the volatility channel, may lead one to erroneously conclude that there is no effect of resources on growth.
Subfields: Building and Construction, Development, Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/577209691bef3d75fd9ef9be50a31e5d13ae1b36
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Building and Construction
- E. Papyrakis
- F. van der ploeg
- Brock Smith
- A. James
- E. Gilberthorpe
- S. Poelhekke
- J. Pettersson
- Jesper Roine
In Development
- F. van der ploeg
- S. Poelhekke
- E. Papyrakis
- A. James
- Brock Smith
- A. Boschini
- J. Pettersson
- Jesper Roine
In Economics and Econometrics
- F. van der ploeg
- E. Papyrakis
- S. Poelhekke
- A. James
- E. Gilberthorpe
- Brock Smith
- A. Boschini
- J. Pettersson
Citations in the corpus
- The Impact of Natural Resources: Survey of Recent Quantitative Evidence (2017, methodology): “However, resource abundance is also an endogenous variable and therefore the econometric methodology of this study is flawed too (Van Der Ploeg & Poelhekke, 2010).1 Second, it might not be the level of natural resource dependence or abundance, but the notorious volatility of commodity prices that is”
- The Politics of the Resource Curse: A Review (2020, neutral): “Van der Ploeg and Poelhekke (2010) argue that the Brunnschweiler and Bulte study is flawed by weak instruments, omitted variable bias, a violation of the exclusion restriction, and a misspecified model.24 Cotet and Tsui (2013) also instruments for resource wealth, using a unique measure of oil…”
- The Resource Curse - What Have We Learned from Two Decades of Intensive Research: Introduction to the Special Issue (2017, background): “Van der Ploeg and Poelhekke (2010) replicate the analysis by Brunnschweiler and Bulte (2008) by replacing their original proxy of resource abundance (a measure of per capita subsoil wealth, which van der Ploeg and Poelhekke claim is likely to depend on resource rents and GDP growth) with the value…”
- The extractive industries and development: The resource curse at the micro, meso and macro levels (2015, background): “The volatile swings of world resource prices are also likely to result in a macroeconomic see-saw effect for mineral rich economies, as well as create uncertainty for domestic and foreign investors (see van der Ploeg and Poelhekke, 2010).”