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Institutions, Economic Growth, and the "Curse" of Natural Resources

Type: Research Studies
Date Published: July 9, 2009
Research Topics:

The proposition that natural resources, like physical and human capital, would spur economic growth would not seem to be controversial. So in the 1990s, when Jeffrey Sachs and Andrew Warner (1995) showed empirical evidence of a "natural resource curse"-the negative impact of natural resources on economic growth-it is no surprise that their finding inspired a large body of new empirical research.

This research has the potential to shape the development policies of nations across the globe. A large number of developing nations, including those in sub-Saharan Africa, are rich in natural resources and, thus, this research may play a role in their future prosperity. The goal of this paper is to assess whether the literature on the "curse" of natural resources that has been published in the decade and a half since Sachs and Warner (1995) is cohesive and persuasive enough that policy makers in resource-rich nations can rely upon it when framing public policy intended to enhance economic growth and relieve poverty.

In a nutshell, here is the paper's main conclusion. In the first stages of research, it appeared that the literature was coming to a consensus: the natural resource curse was both statistically and economically significant. More recent research taking advantage of new data sets and more appropriate econometric analysis suggests that such a consensus may have been too hasty. In hindsight, it is safe to assert that, while many countries have floundered because they were rich in natural resources, such countries are by no means doomed to failure and poor economic performance; at least so the empirical and evidence from case studies would suggest. Nations with other characteristics-stronger institutions and openness to trade, for example-are likely to grow and prosper, even if they possess natural resources.

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