An investigation of the competitiveness hypothesis of the resource curse

In this paper I investigate the competitiveness explanation of the resource curse: to what extent slow growth in primary producer countries is related to the properties of this pattern of trade specialization. To address this hypothesis that has not been adequately explored in the literature, I estimate cross-country and system GMM panel data regressions, using a sample of 49 developed and developing countries. The empirical analysis explores most hypothetical explanations of the resource curse using a sensitivity approach and alternative trade specialization measures, elaborated with long-term trade disaggregated data, what constitutes an innovation regarding previous empirical work. The main findings of the paper are: i- that primary specialization hampers growth by reducing intraindustry trade and the dynamism of export demand, and ii- that it is the specialization in natural resource products with no or limited processing the one constraining economic growth, but not the specialization in industrialized resource products. Both facts support the competitiveness hypothesis of the resource curse and suggest that this growth paradox is linked to the limitations of resource abundant countries to diversify their tradable sector, and engage in the trade of products that facilitate the achievement of static and dynamic economies of scale.