Does Resource Curse Really Exist in Precious Metal Producer Countries?

Abstract

In this study, the relationship between precious metal production and economic growth is examined for the countries producing them the most, namely Australia, Canada, Mexico, Philippines, Peru, South Africa and USA, for the period 1963–2016 by using Markov switching-vector error correcting models and impulse–response functions. All economies under examination in this study are well described by Markov switching intercept heteroscedasticity-vector error correction models. We detect both estimated intercepts and variances differ across regimes. According to results, the effect of precious metal production on economic growth is various. As a whole, there is a long-run relationship between each precious metal production and economic growth. In the short run, whereas gold production has a negative effect on USA’s and Canada’s economies, which supports resource curse, it has positive one on South Africa’s. The effect of silver production on economic growth of Australia and Peru is negative, but it is positive for Canada and South Africa. While copper production has a positive effect on the economic growth of Australia and South Africa, we find supporting evidence for resource curse for Canada, Peru and USA. We also find insignificant correlation between any precious metals and economic growth for Mexico and Philippines.