Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 29/2002: Institutions and the resource curse

Halvor Mehlum (), Karl-Ove Moene () and Ragnar Torvik ()
Additional contact information
Halvor Mehlum: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Karl-Ove Moene: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Ragnar Torvik: Norwegian University og Science and Technology, Postal: Department of Economics, NTNU, N-7491 Trondheim , Norway

Abstract: Countries rich in natural resources constitute both growth losers and growth winners. We claim that the main reason for these diverging experiences is differences in the quality of institutions. More natural resources push aggregate income down, when institutions are grabber friendly, while more resources raise income, when institutions are producer friendly. We test this theory building on Sachs and Warner.s influential works on the resource curse. Our main hypothesis: that institutions are decisive for the resource curse, is conÞrmed. Our results are in sharp contrast to the claim by Sachs and Warner that institutions do not play a role.

Keywords: Natural resources; Institutional quality; Growth; Rent-seeking

JEL-codes: F43

28 pages, June 18, 2003

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