Institutions and the Volatility Curse

17 Pages Posted: 15 Jul 2011

See all articles by Weishu Leong

Weishu Leong

University of Cambridge - Faculty of Economics and Politics

Kamiar Mohaddes

University of Cambridge - Judge Business School; University of Cambridge - King's College, Cambridge

Date Written: July 10, 2011

Abstract

This paper revisits the resource curse paradox and studies the impact of resource rents and their volatility on economic growth under varying institutional quality. Using five-year non-overlapping observations between 1970 and 2005 for 112 countries, we find that while resource rents enhance real output per capita, their volatility exerts a negative impact on economic growth. Therefore, we argue that volatility, rather than abundance per se, drives the resource curse. However, we also find that higher institutional quality can help offset some of the negative volatility effects of resource rents. Therefore, resource abundance can be a blessing provided that growth and welfare enhancing policies and institutions are adopted.

Keywords: Economic growth, resource curse, institutions, resource rent, commodity price volatility

JEL Classification: C23, F43, O13, O40

Suggested Citation

Leong, Weishu and Mohaddes, Kamiar, Institutions and the Volatility Curse (July 10, 2011). Available at SSRN: https://ssrn.com/abstract=1885569 or http://dx.doi.org/10.2139/ssrn.1885569

Weishu Leong

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Kamiar Mohaddes (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 (0)1223 766933 (Phone)

HOME PAGE: http://https://www.mohaddes.org/

University of Cambridge - King's College, Cambridge ( email )

King's Parade
Cambridge, CB2 1ST
United Kingdom
+44 (0)1223 766933 (Phone)

HOME PAGE: http://https://www.mohaddes.org/

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