Oil Greasing the Wheels: When Do Natural Resources Become a Blessing?

Nisreen Salti

No 439, Working Papers from Economic Research Forum

Abstract: This paper considers theoretically and empirically natural resources’ effect on growth using a two sector-model (resource and non-resource). Governments tax the non-resource sector and choose institutional quality, which determines productivity in the non-resource sector and the governments’ ability to appropriate resource rents. Resource booms harm institutions. Their effect on growth depends on relative sector sizes: when rents are relatively substantial, governments incur the cost of corrupting institutions and the loss of taxes from the non-resource sector for a bigger share of rents. The results are confirmed using cross-country panel data: countries in the bottom quintile of the manufacturing-share of value-added are cursed by resources, other countries are blessed.

Pages: 29
Date: 2008-01-09, Revised 2008-01-09
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Citations: View citations in EconPapers (5)

Published by The Economic Research Forum (ERF)

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