The Natural Resource Curse Revisited: Case Study of Latin America

Abstract

Many papers have used cross-sectional regressions to prove the negative relationship between natural resource abundance and economic growth. However, most of the recent empirical works on natural resource abundance and growth focus on the aggregated natural resources as a whole. The aggregation of the different components of natural resources into one measure may neglect differences in their growth impacts. Therefore more research is needed to examine whether different natural resources have different effects on growth and which resources have the strongest growth effect. This paper suggests that not all natural resources hinder economic development. Depending on the natural resource type, some resources such as fruits, vegetables and agricultural raw materials show robust positive correlations with economic growth. On the other hand, there are commodities such as oil and natural gas that create opportunities for rent-seeking behavior and are crucial for determining the level of corruption. These commodities show significant negative relations with economic growth. The case studies of Latin America confirm that certain natural resource abundance can be detrimental to economic growth. Thus, the aim of this thesis is twofold. First, the effect of natural resource abundance on economic growth is examined by different resource types. Natural resources are classified into five categories and their impacts on growth are analyzed. Second, the effect of different natural resource types on corruption is investigated. Natural resource wealth can create certain distortions that work as mechanisms which hamper economic development. In order to explore these mechanisms, the effect of natural resources on corruption is examined by subcategories. The regression results indicate that subsidiary food and fuel exports are strongly associated with corruption. In contrast to previous studies that mainly used cross-sectional analysis, this paper is focused on a panel data set for the period 1970-2009 and up to 156 countries including Latin America, Sub-Saharan Africa, Asia and Europe as regional variables. This paper contributes to the field of natural resources and economic growth by providing interesting insights as the analyses on the natural resource exports at a disaggregated level are rather rare.