Natural Resources and Economic Growth: The Conditional Curse

Abstract

Many studies of “natural resource curse” have been constantly criticized for their measurement of natural resources, over-reliance on the period from 1970 to 1989, and over-generalization of the resource curse. This paper shows that different measurements do not lead to different interpretations of this controversial relationship. The criticism of the use of exports of natural resources in GDP cannot be justified, as production data by the World Bank still supports the curse finding. Similarly, per-capita measures of both export and production data of natural resources still reveal a negative relationship between natural resources and economic growth. In addition, the measures of only minerals and fuels, excluding other primary commodities, do not invalidate the resource curse findings. However, the link between natural resources and economic growth turns positive from 1990 to 2009, suggesting that studies that rely on earlier periods miss out the time dimension of the impact of natural resources on growth. When the whole period from 1970 to 2009 is used to observe this relationship, the impact of natural resources on economic growth cannot be revealed without taking into account the different macroeconomic and institutional quality of resource-rich countries. Once resource-rich countries are classified based on their financial risk and political risk assessments, from 1980 to 2009 natural resources are in fact a blessing for countries that well manage their financial, macroeconomic, and political situations. Resource curse is evidenced in resource-rich countries that have high financial risk or face political instability. In other words, transmission channels determine if natural resources are a curse or a blessing.