Revisiting the resource curse in the MENA region

Abstract

The aim of this paper is to investigate whether oil revenues in the MENA region lead to economic growth or whether the resource curse is evident. To do so we employ a panel Vector Auto-Regressive (PVAR) model comprising not only the economic growth and oil revenues but also the government expenditures. The latter variable is considered so as to examine whether the oil revenue leads to economic growth via the fiscal policy channel. We further assess whether heterogeneous findings exist depending on the quality of the political institutions of the MENA countries. Our findings suggest that irrespectively of whether a MENA country is democratic or not, the resource-blessing (rather than the resource curse) is evident. More importantly, though, we show that the resource curse is revealed when we consider the status of the chief of state, i.e., whether it is a military officer or not. In particular, we show that countries with military executives suffer from the resource curse, since the oil rents do not lead to economic growth. A number of alternative measures for the quality of political institutions, sample size and estimation procedures render our findings robust.