Petroleum endowment and economic growth: examination of the resource curse phenomenon

ABSTRACT

This paper examines the impact of oil resources endowment, measured by proven reserves and oil rents, on the economic growth in the presence of quality of governance factors. To address this issue, we first summarize the previous research by reviewing, from the economic literature, the main explanations of what many regard as ‘curse’ of petroleum resource and, in a larger context, evoke the different relationships between natural resources and economic growth. Then, a panel data econometric model is fitted to a dataset consisting of 40 countries and sampled over a period of 17 years. The empirical results confirm, on one hand, the main hypothesis that proven oil resources negatively explain the economic growth. On the other hand, it is shown that oils rents are slightly positively correlated to the economic growth. The manipulation of the set of explanatory variables in the model does not change this overall negative correlation between growth and petroleum endowment, thus proving the counter-intuitive assumption that oil wealth limits the opportunities for economic growth. The results also confirm the old hypothesis that natural resources are negatively correlated to the countries’ GDP through the quality of their economic and financial institutions.

KEYWORDS:

• Oil endowment
• economic growth
• resource curse
• Dutch disease
• panel data econometrics

Acknowledgments

We would like to thank the anonymous reviewers for their insightful and constructive comments that greatly contributed to improving the paper. Our many thanks go also to the editorial staff for their generous support and assistance during the review process.

Notes

¹ See Jbir (2013) for a recent literature review about the Dutch disease theory.

² See Corden and Neary (1982).

³ For more detail for domestic absorption effect, see Corden (1984).