Thursday, February 18, 2010

Problems with the Resource Curse Hypothesis

Easterly gives us reasons to be skeptical of the resource curse:
New research argues that empirical work on the Curse suffers from two interrelated problems. First, it uses dependence (the share of GDP from that resource) and calls it abundance (the stock of a resource in the ground). But dependence in turn depends on institutional quality—if you have sound institutions, natural resources take their place along other industries. If not, natural resources will by default constitute a large share of GDP because poor institutions stifle an advanced division of labor. When you look at cross-sectional data using dependence as a proxy for abundance, it will look like natural resources compromise institutional quality.
The other problem is that oil changes institutions, but there are several links in that causal chain from oil to growth. And how does it stand up to recent research?
  • Christa Brunnschweiler and Erwin Bulte tackle the first problem. They find a positive correlation between resource abundance and both growth and institutional quality, and argue that it is conflict and poor institutional quality that lead to dependence.
  • Stephen Haber and Victor Menaldo ... present evidence that even natural resource dependence does not undermine democratization.
  • Romain Wacziarg corrects for both problems, testing for the effects of high oil prices on democracy using panel data. Again, there is no evidence for the Curse.

[Edit: I had posted this a while back and I'm not sure why it thinks I've posted it brand new.]

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