Institutions and the Volatility Curse

Weishu Leong (weishuleong@gmail.com) and Kamiar Mohaddes

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper revisits the resource curse paradox and studies the impact of resource rents and their volatility on economic growth under varying institutional quality. Using five-year non-overlapping observations between 1970 and 2005 for 112 countries, we find that while resource rents enhance real output per capita, their volatility exerts a negative impact on economic growth. Therefore, we argue that volatility, rather than abundance per se, drives the resource curse. However, we also find that higher institutional quality can help offset some of the negative volatility effects of resource rents. Therefore, resource abundance can be a blessing provided that growth and welfare enhancing policies and institutions are adopted.

Keywords: Economic growth; resource curse; institutions; resource rent; and commodity price volatility. (search for similar items in EconPapers)
JEL-codes: C23 F43 O13 O40 (search for similar items in EconPapers)
Date: 2011-07-25
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Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1145

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