Institutions and the Resource Curse* 


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    We are grateful to two anonymous referees and editor Andrew Scott for their constructive suggestions. We also thank Jens Chr. Andvig, Carl-Johan Lars Dalgaard, James A. Robinson and a number of seminar participants for valuable comments.


Countries rich in natural resources constitute both growth losers and growth winners. We claim that the main reason for these diverging experiences is differences in the quality of institutions. More natural resources push aggregate income down, when institutions are grabber friendly, while more resources raise income, when institutions are producer friendly. We test this theory building on Sachs and Warner's influential works on the resource curse. Our main hypothesis – that institutions are decisive for the resource curse – is confirmed. Our results contrast the claims of Sachs and Warner that institutions do not play a role.