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...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2012
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2012/07/16558571/natural-resources-cursed-investigation-dynamic-effects-resource-dependence-institutional-quality http://hdl.handle.net/10986/11992 |
| Summary: | 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. |
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