Academic journal article Journal of Economic Development

Natural Resource Abundance: Is It a Blessing or Is It a Curse

Academic journal article Journal of Economic Development

Natural Resource Abundance: Is It a Blessing or Is It a Curse

Article excerpt

1. INTRODUCTION

There exists a vast literature on why countries might suffer resource curse. We identify four different channels or transmission mechanisms (with various combinations and variations) which endeavour to account for the inverse statistical relationship between resource abundance and economic growth: i) Decline in terms of trade; ii) Volatility of revenues; iii) Quality of Governance; and, iv) Dutch disease.

Representative empirical works on the impact of natural resources on growth include Sachs and Warner (1995 and 2001) and Isham, Woolcock et al. (2005). These authors arrived at the conclusion that countries with a high ratio of resource exports to GDP have relatively lower rates of GDP growth. The result - of negative and significant impact - remaining robust after introduction of controls for quality of governance; initial level of per capita income; level of investment; inequality; and, trade policies. A recent study based on detailed, disaggregated sectoral data for manufacturing finds that the overall effect of a lasting oil extra payments shocks is substantial, whereas a 10 per cent rise in pay-outs is related to a 3.6 per cent decrease in manufacturing output (Ismail, 2010). Another current paper providing evidence for 135 countries for the period 1975-2007, estimates that the reaction to an increase of resource revenue by one unit is a decline of non-resource exports by 0.5, increase in savings by 0.35 and rise imports by 0.15 units (Harding and Venables, 2010). Other studies finding negative effects of resource abundance/oil wealth on economic performance include Sala-i-Martin and Subramanian (2003). However, the conclusions of Sala-i-Martin and Subramanian are qualified by stating that when there is a control established for the quality of institutions the effect of resource abundance on economic growth would be trivially negative or can be positive. Furthermore, their results advocate that natural resources' effect is nonlinear. Kaldor et al. (2007) extend this nexus plausibly, whereby oil generally tends to weaken state institutions turning them eventually to failed states and ultimately causing violence and wars. "Even in the best cases, where oil rents appear to be successful in propping up some form of centralised authority, rents tend over time to exacerbate state weakness, risking the creation of state failure and threat of further 'new oil wars'. Oil wars are rentier wars." Finally, in a topical work Konte (2012) models the unobserved heterogeneity of the relevant different growth regimes, testing if the natural resources turn to a curse or a blessing depending on the regime they belong to. The findings of this study support the view that for the 36-year period of 1970 to 2005 the data generation process is best modelled by two regimes whereas in the first case the natural resources abundance positively affect growth, but in the second one does not boost growth; the deterring factor being the state of democracy, while level of education and institutional structure turn out to be insignificant. Simultaneously there are statistical studies, e.g., Herb (2005) which are rather undecided as they are not finding reliable support for the hypothesis that rent-seeking has a detrimental effect on democracy. Furthermore, Alexeev and Conrad (2009) criticise the conclusions that abundance of resources negatively affects economic growth, and that this negative effect works through the structure and quality of political institutions; stating: "We believe there is little or no evidence that the large endowments of oil or minerals slow long-term economic growth. In fact, the data available so far suggest that natural resources enhance long-term growth. We have demonstrated this result by focusing on the levels of per capita GDP rather than on the rates of growth over any given period of time." In the same vein Papyrakis and Gerlagh (2004) affirm: "In the twentieth century, resource abundant countries such as Norway and Iceland experienced remarkable and sustained growth rates. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.