Revisiting resource curse puzzle: new evidence from heterogeneous panel analysis

ABSTRACT

This study examines the natural resource curse hypothesize on a panel of 111 countries over the period 1996–2015. Using a range of heterogeneous panel cointegration techniques, it tests the resource curse hypothesis while allowing for cross-section heterogeneity. Specifically, it employs common correlated effects mean group, cross-sectionally augmented autoregressive distributed lag (CS-ARDL), and cross-sectionally augmented distributed lag (CS-DL) techniques. It begins the analysis with a conventional method in which the average value of variables is considered. The conventional approach fails to provide any clear evidence. The CCEMG estimator yields limited evidence supporting the resource curse in the long-run. However, CS-DL and CS-ARDL results show strong evidence for resources as a curse in the short-run, however, the evidence is weak in suggesting any long-run influence of resource-dependence on economic growth. Furthermore, CS-ARDL-based results also show that the effects work with a lag. Overall, we find support for the resource curse hypothesis, suggesting that resource-rich economies tend to grow at a slower rate in comparison to the resource-deprived ones.

KEYWORDS:

• Resource curse
• panel data analysis
• economic growth
• cross-section dependence

JEL CLASSIFICATION:

• Q32
• C33

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Refer Badeeb, Lean, and Clark (2017) and Vahabi (2018), for a detailed review on the existing literature.

² Increasing exchange rate due to natural resource export makes the exchange rate unfavourable to the other exporting sectors, namely the manufacturing sector, hence, hiders the overall economic growth of the nation..

³ Torres, Afonso, and Soares (2013) have tested the effect on wage growth. Their analysis shows that joint effect of resources is insignificant however results based on individual resource demonstrate a positive impact

⁴ To conserve the space, we do not report the unit root test results, however, could be made available on request.