Are Natural Resources Cursed? An Investigation of the Dynamic Effects of Resource Dependence on Institutional Quality

This paper examines whether natural resource dependence has a negative influence on various indicators of institutional quality when controlling for the potential effects of other geographic, economic and cultural initial conditions. Analysis of a panel of countries from 1996 to 2010 indicates that a high degree of resource dependence, measured as the share of mineral fuel exports in a country's total exports, is associated with worse government effectiveness, as well as with reduced levels of competition across the economy. Furthermore, estimation of long-run elasticities suggests that government effectiveness and the intensity of domestic competition decrease over time as the dependence on natural resources increases. An illustration of the Russian case shows that the negative effects accumulate in the long run, leading to a worse deterioration of government effectiveness in Russia than in Canada, a country with a comparable resource endowment but far better overall institutional quality. This result is corroborated by a significant negative correlation found between regional resource dependence and an indicator of regulatory capture in Russian regions, which indicates that the regulatory environment is more likely to be subverted in regions that are more dependent on extractive industries. Overall, the findings would be consistent with a situation in which a generally weak institutional environment would allow resource interests to wield the bidding power accruing from export revenues to subvert the content of laws and regulations, as well as their enforcement. The fact that this is associated with negative externalities for the rest of the economy, notably by undermining a level playing field across non-resource sectors, sheds light on a potential channel for the resource curse.

Bibliographic Details

Main Authors:	De Rosa, Donato, Iootty, Mariana
Language:	English
Published:	World Bank, Washington, DC 2012-07
Subjects:	ACCOUNTABILITY, ADVANCED ECONOMIES, AGGREGATE GOVERNANCE INDICATORS, AGGREGATE INDICATORS, ALLOCATIVE EFFICIENCY, ANTICORRUPTION, ASYMMETRIC INFORMATION, AUCTION, AVERAGE RESPONSES, BENCHMARK, BOND, BUSINESS DEVELOPMENT, BUSINESS ENVIRONMENT, BUSINESS PRACTICES, BUSINESS SECTOR, BUSINESS SECTOR DEVELOPMENT, CAPITAL INFLOWS, CAUSAL EFFECT, CITIZENS, CIVIL SOCIETY, COAL, COLLECTIVE ACTION, COMMERCIAL RISK RATING AGENCIES, COMMODITIES, COMPARATIVE ECONOMICS, COMPETITION POLICIES, COMPETITIVENESS, CONTRACT ENFORCEMENT, CORRUPTION, CORRUPTION INDICATOR, CORRUPTION LEVELS, COUNTRY CHARACTERISTICS, COUNTRY DUMMIES, COUNTRY DUMMY, COUNTRY FIXED EFFECTS, COUNTRY REPORTS, COUNTRY SPECIFIC VARIABLES, CRIME, DECENTRALIZATION, DEMOCRACY, DEVELOPED COUNTRIES, DEVELOPING COUNTRIES, DEVELOPING ECONOMIES, DEVELOPMENT ECONOMICS, DEVELOPMENT PATHS, DEVELOPMENT POLICY, DIRECT INVESTMENT, DOLLAR VALUE, DOMAIN, DOMESTIC COMPETITION, DOMESTIC MARKET, ECONOMETRICS, ECONOMIC CONDITIONS, ECONOMIC CONSEQUENCES, ECONOMIC CRISIS, ECONOMIC DEVELOPMENT, ECONOMIC FACTORS, ECONOMIC GROWTH, ECONOMIC OUTCOMES, ECONOMIC PERFORMANCE, ECONOMIC RESEARCH, ECONOMIC STRUCTURE, ECONOMIC THEORY, ECONOMICS, ELASTICITIES, ELASTICITY, EMPIRICAL EVIDENCE, EMPIRICAL STUDIES, ENVIRONMENTAL, ENVIRONMENTAL ECONOMICS, EXCHANGE RATE, EXPORT MARKETS, EXPORTS, EXPOSURE, FACTORS OF PRODUCTION, FINANCIAL SECTORS, FOREIGN CAPITAL, FOREIGN DIRECT INVESTMENT, FREE PRESS, GDP, GDP PER CAPITA, GLOBAL COMPETITIVENESS, GOVERNANCE INDICATORS, GOVERNMENT EFFECTIVENESS, GOVERNMENT EXPENDITURE, GROWTH PERFORMANCE, GROWTH POLICY, GROWTH POTENTIAL, GROWTH RATES, GROWTH THEORIES, HUMAN CAPITAL, HUMAN RESOURCES, INCOME, INCOME DISTRIBUTION, INCOME LEVELS, INCOMES, INDUSTRIAL PRODUCTION, INEQUALITY, INNOVATION, INNOVATION POLICY, INSTITUTIONAL ARRANGEMENTS, INSTITUTIONAL ENVIRONMENT, INSTITUTIONAL FRAMEWORK, INSTITUTIONAL MEASURES, INSTITUTIONAL QUALITY, INTERNATIONAL COMPARISON, INTERNATIONAL COMPETITIVENESS, JUDICIAL SYSTEM, JURISDICTION, LAW INDEX, LEGAL ORIGIN, LEGAL ORIGINS, LEGAL SYSTEM, LIVING STANDARDS, MACROECONOMIC MANAGEMENT, MANUFACTURING, MARKET COMPETITION, MARKET ECONOMY, MARKET REGULATION, MEASURING GOVERNANCE, METALS, MONETARY ECONOMICS, MONOPOLIES, NATURAL RESOURCE, NATURAL RESOURCES, NEGATIVE EXTERNALITIES, NEW TECHNOLOGIES, OIL, OIL PRICES, OIL SECTOR, OPEN ACCESS, OPERATING ENVIRONMENT, OUTPUT, PER CAPITA INCOME, POLICY FORMULATION, POLICY MAKERS, POLITICAL ACCOUNTABILITY, POLITICAL ECONOMY, POLITICAL INFLUENCE, POLITICAL INSTABILITY, POLITICAL POWER, POLITICAL STABILITY, POSITIVE EFFECTS, POSITIVE EXTERNALITIES, PRIVATE SECTOR, PRIVATE SECTOR DEVELOPMENT, PRODUCTION PROCESS, PRODUCTIVITY, PRODUCTIVITY GROWTH, PROPERTY RIGHTS, PUBLIC POLICIES, PUBLIC POLICY, RAPID ECONOMIC GROWTH, REGRESSION ANALYSIS, REGULATORS, REGULATORY CAPTURE, REGULATORY ENVIRONMENT, REGULATORY FRAMEWORK, REGULATORY OUTCOMES, REGULATORY QUALITY, REGULATORY REGIME, REGULATORY_CAPTURE, RENT SEEKING, RESOURCE ALLOCATION, RESOURCE MANAGEMENT, RESULT, RESULTS, REVERSE CAUSALITY, RULE OF LAW, SHAREHOLDERS, SMALL BUSINESS, SMALL BUSINESSES, SOCIAL INTERACTIONS, STAGFLATION, STATE CAPTURE, STATISTICAL DATA, TAX, TAX BREAKS, TAXATION, TERMS OF TRADE, TERRORISM, THEORETICAL MODELS, TRADE POLICY, TRANSITION ECONOMIES, TRANSMISSION, TRANSPARENCY, UNOBSERVED COMPONENTS MODEL, VESTED INTERESTS, VOLATILITY, WEALTH, WEB, WORLD DEVELOPMENT INDICATORS, WORLD TRADE, WORLD TRADE ORGANIZATION, WORLDWIDE GOVERNANCE INDICATORS,
Online Access:	http://documents.worldbank.org/curated/en/2012/07/16558571/natural-resources-cursed-investigation-dynamic-effects-resource-dependence-institutional-quality https://hdl.handle.net/10986/11992
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