Can the Natural Resource Curse Be Turned Into a Blessing? The Role of Trade Policies and Institutions

By Rabah Arezki, F. van der ploeg. Social Science Research Network, 2007

205 citations recorded by the source corpus.

We criticize existing empirical results on the detrimental effects of natural resource dependence on the rate of economic growth after controlling for institutional quality, openness, and initial income. These results do not survive once we use instrumental variables techniques to correct for the endogenous nature of the explanatory variables. Furthermore, they suffer from omitted variables bias as they overestimate the effect of initial income per capita and thus underestimate the speed of conditional convergence. Instead, we provide new evidence for the impact of natural resource dependence on income per capita in a systematic empirical cross-country framework. In addition to a significant negative direct impact of natural resources on income per capita, we find a significant indirect effect of natural resources on institutions. We allow for interaction effects and provide evidence that the natural resource curse is particularly severe for economic performance in countries with a low degree of trade openness. Adopting policies directed toward more trade openness may thus soften the impact of a resource curse. We also check the robustness of our results by using a variety of instruments and also employing the ratio of natural capital rather than natural resource exports to national income as an explanatory variable. We find evidence that resource abundance, measured by the stock of natural capital, also induces a resource curse, but less severely for countries that are relatively open.

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Citations in the corpus

Growth, Development and Natural Resources: New Evidence Using a Heterogeneous Panel Analysis (2011, background): “(2006) have attempted to show that the impact of natural resources on growth and development depends primarily on institutions, while Boschini et al. (2007) have argued that the type of natural resources possessed is also an important factor.”
Managing Resource Revenues in Developing Economies (2010, background): “Torvik, 2006), are open to international trade ( Arezki and van der Ploeg, 2008 ), or have welldeveloped financial systems (van der Ploeg and Poelhekke, 2008).1 It is notoriously difficult”
Why do some resource-abundant countries succeed while others do not? (2009, background): “Aslaksen and Torvik (2006) discuss how resource rents affect the choice between competition for political power through elections versus through violent conflict.”
Fiscal Policy Challenges in Oil-Exporting Countries - A Review of Key Issues (2009, background): “Sala-i-Martin and Subramanian (2003) and Van der Ploeg and Arezki (2008) are able to identify a signifi cant negative indirect effect of natural resources on the quality of institutions.”
Natural Resources and Economic Growth : A Meta-Analysis (2016, background): “Atkinson and Hamilton (2003) and Gylfason and Zoega (2006) propose a different transmission channel and stress the role of investment. They find that natural resources crowd out physical capital and consequently have a negative effect on economic growth. Brunnschweiler and Bulte (2008) show that the”