The Irony of Wealth: An Empirical Investigation of Short-Run of Natural Resource Abundance

This paper provides an empirical analysis of the eects of natural resource wealth on short-run eco- nomic growth. In addition, the market mechanisms resulting from natural resources abundance are investigated. The analysis is conducted rst on a global scale for the period 1980-2011, and second on the regional scale of the United States for the period 1987-2012. This allows me to exploit the dierent advantages that come with the two distinct methods. As most of the early work is based on single cross-sectional growth regressions which do not take into account individual country eects, two new panel-datasets are constructed. These are tested using a system GMM approach to counter the potential bias resulting from the dynamic panel-data framework used in this analysis. Strikingly, the results show that the original ndings of the resource curse thesis are not robust to changing the econometric framework and sample period. Both on a global and regional scale, the estimated eect of natural resource wealth on short-run economic growth is positive and signicant, indicating that the resource curse could actually be a resource blessing. These ndings are robust to the three dierent estimators and the adoption of two alternative measures of resource wealth. Exploratory steps on the reason behind this contradicting nding, indicate that a negative coecient could be the result of specic decades in which natural resources prices were more volatile. Contrary to the eect on growth, no robust evidence is found for both market channels of resource wealth examined in this study. The possible absence of these channels is in favour of the reported positive eect of resource wealth on economic growth.