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When does natural resource abundance lead to a resource curse?

S Mansoob Murshed

Discussion paper, 54 pages

Certain types of natural resources such as oil and minerals tend to lead to production and revenue patterns that are concentrated (point-sourced economies), while revenue flows from other types of resources such as agriculture are more diffused throughout the economy (diffuse economies). Most countries in the first group have been prone to growth failure in recent times, with notable exceptions such as Botswana and Indonesia. This paper reviews two models, the first outlining the onset of the resource curse, and the second sketching conditions where resource booms actually aid growth. The importance of institutions is highlighted, followed by a sketch of institutional malfunctioning and an overview of the empirical models of institutional determination. The empirical analysis put forward is one of the few econometric investigations into the resource curse that includes analysis over time. Findings suggest that a point-source type of natural resource endowment retards democratic and institutional development, which in turn hampers economic growth.

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