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Oxford Economic Papers Advance Access originally published online on July 29, 2009
Oxford Economic Papers 2009 61(4):727-760; doi:10.1093/oep/gpp027
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© Oxford University Press 2009 All rights reserved

This article appears in the following Oxford Economic Papers issue: Symposium on Resource Rich Economies [View the issue table of contents]

Volatility and the natural resource curse

Frederick van der Ploeg* and Steven Poelhekke{dagger}

*University of Oxford, Manor Road Building, Oxford OX1 3UQ, and University of Amsterdam; e-mail: rick.vanderploeg{at}economics.ox.ac.uk
{dagger}De Nederlandsche Bank, Postbus 98, 1000 AB Amsterdam

JEL classifications: C12, C21, C23, F43, G20, O11, O41, Q32


  Abstract

We provide cross-country evidence that rejects the traditional interpretation of the natural resource curse. First, growth depends negatively on volatility of unanticipated output growth independent of initial income, investment, human capital, trade openness, natural resource dependence, and population growth. Second, the direct positive effect of resources on growth is swamped by the indirect negative effect through volatility. Third, with well developed financial sectors, the resource curse is less pronounced. Fourth, landlocked countries with ethnic tensions have higher volatility and lower growth. Fifth, restrictions on the current account raise volatility and depress growth whereas capital account restrictions lower volatility and boost growth. Our key message is thus that volatility is a quintessential feature of the resource curse.


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