Trade policies, institutions and the natural resource curse

Abstract

We offer new cross-country evidence on the natural resource curse. We investigate the impact of the interaction of natural resource abundance and policies on growth. We find that the resource curse is less severe in countries with less restrictive trade policies and good institutions. However, we show that empirical evidence on the resource curse is not robust to correcting for the endogenous nature of some regressors.

Notes

¹Lederman and Maloney (2003, 2006) allow for endogeneity and different time periods and cannot reproduce the results of Sachs and Warner (1995, 1997). In fact, they find that natural resource dependence has a positive effect on economic growth, whereas export concentration hampers growth, even after controlling for physical and human capital accumulation variables among others.

²Although Ding and Field (2005), Brunnschweiler (2008) and Brunnschweiler and Bulte (2008) deal with endogeneity of natural resource revenues.

³κ = 0.744, t ₂ − t ₁ = 25, so θ = 1 − 25 × 0.744/100 = 0.814 and T = −25 log (2)/log (0.814) = 84.2 years.

⁴The Sachs and Warner (1997) openness indicator, OPEN6590, is constructed using those variables as subcomponents.

⁵Rigobon and Rodrik (2004) split their sample into two sub-samples (colonies versus noncolonies and continents aligned along an East–West axis versus those aligned on a North–South axis) and exploit the differences in structural variance in these sub-samples to identify parameters. They find that democracy and especially the rule of law boost income per capita, but openness negatively affects income per capita and democracy and positively affects the rule of law.