Cursed by Resources or Institutions?

TLDR

Natural resource abundance can either hinder or boost growth depending on whether institutions are grabber‑friendly or producer‑friendly. The study examines whether natural resources also influence institutional quality. Empirical evidence confirms the theory, showing that resource abundance worsens growth in countries with weak institutions, creating a double resource curse.

Abstract

Natural resource‐abundant countries constitute both growth losers and growth winners, and the main difference between the success cases and the cases of failure lies in the quality of institutions. With grabber‐friendly institutions more natural resources push aggregate income down, while with producer‐friendly institutions more natural resources increase income. Such a theory finds strong support in data. A key question we also discuss is if resources in addition alter the quality of institutions. When that is the case, countries with bad institutions suffer a double resource curse – as the deterioration of institutions strengthens the negative effect of more natural resources.