How exchange rate regimes are exacerbating or mitigating the resource curse?

Abstract

This paper investigates the role of different exchange rate regimes in exacerbating or mitigating the resource curse. The resource curse, in general, and its specific instances such as Dutch Disease may strictly be dependent on the exchange rate movement, which is subjected to the de facto exchange rate regime any country follows, at least in the short run. Using panel data of resource-abundant economies, we structure our model to disentangle the relationship between natural resources and economic growth under different de facto exchange rate regimes. We find that free-float economies are subject to a higher degree of the resource curse. The free-floating exchange rate regime's intrinsic role is conducive to growth, but it can exacerbate the degree of resource curse in resource-rich economies.