Resource Curse : Reconciling Medium and Long Term Results

Recent literature shows that oil revenues have a positive effect on the long-run economic growth rates. However, there is no clear evidence for such an effect in the medium term, i.e. over a five year period. In this paper, we investigate the relationship between oil revenues and economic growth scrutinizing the potential factors that influence how oil revenues impact growth in the medium-run. We employ estimation techniques suitable to address the model uncertainty associated with growth regressions, including the Bayesian Model Averaging (BMA), as well as Lasso and Ridge regressions. The results, based on a large panel of countries covering the period 1975--2020, indicate that the impact of oil rents on economic growth is conditional on the oil price: When oil prices increase, countries with oil revenues experience faster growth. Conversely, without growth in oil prices, oil exporters experience the resource curse. Other factors, including the institutional quality and Dutch disease, are non-robust and thus, do not affect the impact of oil rents on growth. Given the fact that oil prices have been increasing during the last decades, our results explain the positive net effect of oil rents on growth in the long term, and therefore, reconcile the mixed empirical evidence for the resource curse in the medium and long term