Currently, evidence on the ‘resource curse’ yields a conundrum. While there is much crosssection evidence to support the curse hypothesis, time series analyses using vector autoregressive (VAR) models have found that commodity booms raise the growth of commodity exporters. This paper adopts panel cointegration methodology to explore longer term effects than permitted using VARs. We find strong evidence of a resource curse. Commodity booms have positive short-term effects on output, but adverse long-term effects. The long-term effects are confined to “high-rent”, non-agricultural commodities. We also find that the resource curse is avoided by countries with sufficiently good institutions. We test the channels of the resource curse proposed in the literature and find that a substantial part of it is explained by high public and private consumption, low or inefficient total investment, and an overvalued exchange rate. Our results fully account for the cross-section results in the seminal

This paper addresses the efficient management of natural resource revenues in capital-scarce developing economies. We depart from usual prescriptions based on the permanent income hypothesis, since for capital-scarce countries it is preferable to invest domestically. Since revenue streams are highly volatile, governments should protect consumption from shocks by increasing it only cautiously. Volatility in domestic investment can to an extent be moderated by a buffer of international liquidity, but it is also important to structure investment processes to be able to cope efficiently with substantial fluctuations. To date, most of the resource-rich countries of Africa have not had investment rates commensurate with their rate of resource extraction.

We study how natural resources can feed corruption and how this effect depends on the quality of the democratic institutions. Our game-theoretic model predicts that resource rents lead to an increase in corruption if the quality of the democratic insti-tutions is relatively poor, but not otherwise. We use panel data covering the period 1980 to 2004 and 124 countries to test this theoretical prediction. Our estimates confirm that the relationship between resource rents and corruption depends on the quality of the democratic institutions. Our main results hold when we control for the effects of income, time varying common shocks, regional fixed effects and various additional covariates. They are also robust to the use of various alternative mea-sures of natural resources, corruption and the quality of the democratic institutions, and across different samples. These findings imply that democratization might be a powerful tool to reduce corruption in resource-rich countries. JEL classification: D7, O1 Key words: Natural resources; democracy; political institutions; corruption

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We theoretically and empirically examine the relationship between natural resource revenues and financial development. In the theoretical part, we present a politico-economic model in which contract enforcement is low and decreasing in resource revenues when political institutions are poor, but high otherwise. As poor contract enforcement leads to low financial development, the model predicts that resource revenues hinder financial development in countries with poor political institutions, but not in countries with comparatively better political institutions. We test our theoretical predictions systematically using panel data covering the period 1970 to 2005 and 133 countries. Our estimates confirm our theoretical predictions. Our main results hold when we control country fixed effects, time varying common shocks, income and various additional covariates. They are also robust to alternative estimation techniques, various alternative measures of financial development and political institutions, as well as across different samples and data frequencies. We present further evidence using panel data covering the period 1870 to 1940 and 31 countries.

Surprisingly little is known about the impact of natural resource booms on income inequality in resource rich countries (Ross, 2007). This paper develops a theory, in the context of a two sector growth model in which learning-by-doing drives growth, to explain the time path of inequality following a resource boom. Under the condition that the nontraded sector uses unskilled labor more intensively than the traded sector, we nd that income inequality will fall in the short run immediately after a boom, and will then increase steadily over time as the economy grows, until the initial impact of the boom on inequality disappears. Using dynamic panel data estimation for 90 countries between 1965 and 1999, and exploiting variation in world commodity prices to identify resource booms, we …nd evidence in support of the theory, especially for oil and mineral booms. We also …nd that uncertainty about future commodity export prices signi…cantly increases long-run inequality.

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Abstract: As poor countries deplete their natural resources, for increased consumption to be sustainable some of the revenues should be invested in other public assets. Further, since such countries typically have acute shortages of public capital, the finance from resource depletion is an opportunity for needed public investment. Using a new global panel dataset on public capital and resource rents covering the period 1970 to 2005 we find that, contrary to these expectations, resource rents significantly and substantially reduce the public capital stock. This is more direct evidence for a policy-based ‘resource curse ’ than the conventional, indirect evidence from the relationships between resource endowments, growth and income. The adverse effect on public capital is mitigated by good economic and political institutions and worsened by GDP volatility and ethnic fractionalization. Rents from depleting resources have more adverse effects than those that are sustainable. Our main results are robust to a variety of controls, and to instrumental variable estimation using commodity price and rainfall as instruments, Arellano-Bond GMM estimation, as well as across different samples and data frequencies.

The current paper demonstrates a dichotomy of the growth response to changes in the barter terms of trade (TOT), employing as case studies the following two African countries: Botswana and Nigeria. Using distributed-lag analysis, the paper finds that the effect of TOT on output is positive and negative for the two countries, respectively. I interpret these results as supportive of the ‘resource curse’ hypothesis for Nigeria but not for Botswana. I further argue that the superior institutional quality (IQ) in Botswana, relative to Nigeria, is likely responsible for the contrasting results. However, Nigeria appears to be making progress on IQ, especially in the last decade. Continuing such progress would be necessary if the country was to reverse course.