The curse of natural resources: An empirical research on the world level

Xu, Xiangyu
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University of Delaware
Economists have traditionally viewed natural resources as essential for economic growth, and differing resource endowments as the foundation for trade to exploit comparative advantages. Until about 1980, the mainstream economics rarely questioned the assumed link between resource abundance and growth. Since that time, however, economists have identified, confirmed, and sought to explain a contradictory phenomenon: many empirical studies in the two decades have shown that economic growth rates tend to be lower in resource-abundant economies than in countries with scarce natural resources. This thesis seeks to explain why. Auty (1993) was the first to call this phenomenon "the curse of natural resources". My research uses cross-sectional data collected from 207 countries to analyze the nature of this "curse". I begin with a pooled ordinary least squares (OLS) regression analysis, which is the most commonly used modeling method in previous studies of this topic. I then introduce, discuss and test some alternative regression techniques that improve upon the pooled OLS model. My findings do not support the contention that natural resource abundance per se has a negative effect on economic growth. Rather, my results indicate that corruption is the likely impediment to strong economic performance in resource-abundant economies.