Do Natural Resources Depress Income Per Capita?

Authors


  • We are grateful to the BP funded Oxford Centre for the Analysis of Resource Economies for support. We thank Andrea Barone, Fuad Hasanov, Arnaud Lefranc, Ahsan Mansur, Alessandro Maravalle, Steven Poelhekke, and Ahmed Tritah for helpful comments. We thank Luisa LaFleur and Sheila Tomilloso Igcasenza for editorial assistance. We are also very grateful to the Editor Hossein Farzin for his incisive comments that have helped us to substantially improve an earlier version of the paper.

Arezki: International Monetary Fund, 700 19th Street N.W., Washington DC 20431. E-mail: rarezki@imf.org. van der Ploeg (corresponding author): Department of Economics, University of Oxford, Manor Road Building, Manor Road, Oxford OX1 3UQ, UK and FEE, University of Amsterdam, 1018 WB Amsterdam, The Netherlands. Tel: +44-1865-281285; E-mail: rick.vanderploeg@economics.ox.ac.uk.

Abstract

Most evidence for the resource curse comes from cross-country growth regressions suffers from bias originating from the high and ever-evolving volatility in commodity prices. These issues are addressed by providing new cross-country empirical evidence for the effect of resources in income per capita. Natural resource dependence (resource exports) has a significant negative effect on income per capita, especially in countries with bad rule of law or bad policies, but these results weaken substantially once we allow for endogeneity. However, the more exogenous measure of resource abundance (stock of natural capital) has a significant negative effect on income per capita even after controlling for geography, rule of law and de facto or de jure trade openness. Furthermore, this effect is more severe for countries that have little de jure trade openness. These results are robust to using alternative measures of institutional quality (expropriation and corruption instead of rule of law).

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