Natural Resources: Curse or Blessing?



17

booms have induced members of political elites to dissolve forestry management and destroy
institutions in South-East Asia (Ross, 2001a).

Empirical evidence on how institutional quality transforms effect of resources on growth

The estimates reported in section 3.2 imply that the curse is cast in stone. But subsequent
evidence offers support for the hypothesis that with good institutions the curse can be turned
into a blessing (Mehlum et al., 2006ab). The third regression in Table 1 indicates that
countries with a high enough index of institutional quality (> 14.34/15.4=0.93) experience no
curse. This holds for 15 out of the 87 countries (including the US, Canada, Norway, the
Netherlands, New Zealand and Australia). Five countries belong both to the top eight
according to natural resource wealth and to the top 15 according to per capita income.
Resource rich countries with bad institutions typically are poor and remain poor. Related
cross-country evidence strongly suggests that natural resources - oil and minerals in
particular - exert a negative and nonlinear impact on growth via their deleterious impact on
institutional quality6 rather than through worsening of competitiveness of the non-resource
export sectors (Sala-i-Martin and Subramanian, 2003). The adverse effect of resource
dependence on institutional quality and growth is particularly strong for easily appropriable
‘point-source’ resources with concentrated production and revenues and massive rents such as
oil, diamonds, minerals and plantation crops rather than agriculture (rice, wheat and animals)
whose rents are more dispersed throughout the economy, and with easy appropriation of rents
through state institutions (Auty, 1997, 2001b; Woolcock, et. al., 2001; Isham, et. al., 2003;
Boschini, et. al., 2007; Mavrotas, et. al., 2006).

Appropriability matters, since it indicates the ease of realizing large financial gains
within a short period and having control over resources. Two types can be distinguished
(Boschini, et. al., 2007).
Institutional appropriability implies that resource dependence only
has an adverse effect on economic development when institutions are poor.
Technical
appropriability states that the impact of institutional quality and resource dependence is more
pronounced the more technically appropriable the country’s resources are. Table 2 calculates
the marginal effects of one standard deviation change in various measures of resource
dependence that are increasingly technically appropriable on the average yearly growth rate of
GDP during 1975-88 for different levels of institutional quality (from cross-country
regressions with a sample of 80 industrialised and developed countries, controlling for trade
openness, average share of investment in GDP and initial level of income per capita). Going
from top to bottom in Table 2, we see that better institutions are conducive to growth
indicating
institutional appropriability. Reading Table left to right, the importance of good



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