Resource Abundance, Mineral Funds and Institutional Quality

The present paper attempts to assess the impact of mineral fund setting on institutional quality in the context of resource rich countries. It is commonly observed that many resource-rich countries under-perform in terms of economic development, growth and institutional quality, and often suffer from volatile and unpredictable commodity price movements. This has shifted the focus of the literature towards the identification of the appropriate tools that could protect resource-rich economies and insulate them from the “resource curse”. An outcome of these explorations has been the proposal of mineral fund establishment as a tool of rendering an economy immune to commodity price shocks as well as a tool of institutional amelioration. The present paper identifies the key elements shaping institutional quality in resource rich countries and the impact of mineral fund setting on the later. The robustness of the results is checked under alternative assumptions of the immediate and lagged effect of the fund setting upon the institutions as well as accounting for the degree of nationalization of the resource based sector. Findings suggest that mineral fund setting is not per se a panacea.