Abstract
This paper explores the effect of market orientation on (known or available) natural resource wealth using a novel dataset of world-wide major hydrocarbon and mineral discoveries. Our empirical estimates based on a large panel of countries show that increased market orientation causes a significant increase in discoveries of natural resources. In a thought experiment where economies in Latin America and sub-Saharan Africa remain closed, they would have only achieved one quarter of the actual increase in discoveries they have experienced since the early 1990s. Our results call into question the commonly held view that known or available natural resource endowments are exogenous.
Highlights
The literature on economic development often assumes that natural resource endowments are exogenous
In a thought experiment whereby economies in Latin America and sub-Saharan Africa remained closed, they would have only achieved one quarter of the actual increase in discoveries they have experienced since the early 1990s
Consistent with the predictions of a two-region model, we presented empirical estimates based on a large panel of countries that show that increased market orientation causes a significant increase in discoveries
Summary
The literature on economic development often assumes that natural resource endowments are exogenous. The consensus in that literature is that resource endowments alongside institutions or legal origin, and geography play a crucial role in determining economic and social outcomes.. That literature has overlooked the role that market orientation and institutions play in driving investments in the resource sector. Our aim is to bridge the gap between these two literatures and explore the effect of market orientation on the discovery of proven (known) natural resource wealth. We present systematic evidence that policies geared toward economic liberalization and increased market orientation lead to major natural resource discoveries that eventually boost extractive activities in those countries. We demonstrate that increased market orientation in developing countries is an important determinant of proven natural resource wealth
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