Natural Resources: Curse or Blessing?

15

of institutions, school attainment, resource dependence, etc., such problems need not arise
with panel data regressions. One panel study investigating the link between resources,
institutional development and growth in 91 developing countries during 1970-2000 finds that
point-source type natural resources (minerals, coffee, coca) retard democratic and institutional
development, measured by the degree of democracy for each country over time, and this
stunts growth (Mavrotas, et. al., 2006; also see Ross, 1999, 2001b). Another panel data study
finds that the impact of resources on growth found in cross-country regressions disappears
once one allows for fixed effects; resource dependence (primary exports as fraction of GNP)
may be correlated with unobservable characteristics (Manzano and Rigobon, 2001).

Cross-country and panel-data results are sensitive to changing the sample period, the
sample of countries, or the definition of various explanatory variables. The data may simply
not allow one to distinguish, for example, whether it is openness to international trade, quality
of institutions or financial development, since these variables are highly correlated. The road
forward might be to exploit variation within a country where variables that might confound
the relationship between resources and macroeconomic outcomes do not vary and the danger
of spurious correlation is minimized (cf., Caselli and Michaels, 2009).

3.3. Turning the resource curse into a blessing: good institutions and no corruption
Increased corruption hampers economic growth (Mauro, 1995; Bardhan, 1997; Leite and
Weidmann, 1999). Mineral wealth may prevent redistribution of political power towards the
middle classes and thus prevent adoption of growth-promoting policies (Bourguignon and
Verdier, 2000). Resource wealth worsens quality of institutions, since it allows governments
to pacify dissent, avoid accountability and resist modernization (Isham, et al., 2003).
Corruption and granting of import licenses and other privileges to cronies rather than Dutch
disease seem to be why oil riches have ruined long-run performance of the Nigerian economy
(Sala-i-Martin and Subramanian, 2003). Resource wealth makes it easier for dictators to buy
off political challengers as President Mobuto has done in Congo with its wealth in copper,
diamonds, zinc, gold, silver and oil (Acemoglu et al., 2004). Resource riches raise the value
of being in power and induce politicians to expand public sectors, bribe voters by offering
them well paid, but unproductive jobs and inefficient subsidies and tax handouts, especially if
accountability and state competence are lacking (Robinson et al., 2006). Those profiting from
the resource sector may bribe politicians to provide specific semi-public goods at the expense
of manufacturing, which curbs welfare if manufacturing enjoys returns to scale (Bulte and
Damania, 2008). Natural resources also make it attractive for political elites to block
technological and institutional improvements, since this can weaken their power (Acemoglu
and Robinson, 2006).

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