Revisiting the oil wealth- growth nexus: The role of economic norms in avoiding the oil curse

Brahim Bergougui, Mansoob Murshed

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Abstract

This paper investigates how economic norms shape the relation between oil wealth and economic growth based on a dynamic model that accounts for endogeneity problems. To achieve that, we apply a system-GMM dynamic approach in 103 developing countries classified by their level of contract intensity, over the period 1970–2010. We find that controlling for contract intensity, is important in rendering the direction of the detrimental effects of oil wealth on economic growth. When economies are characterised by a low degree of contract intensity, oil wealth is not growth-enhancing. And when economies achieve a certain level or threshold of contract intensity, then they may become immune to the economic resource curse. In this connection we make an important contribution, by identifying a threshold level of contract intensity, above which the resource curse vanishes. Overall, our paper demonstrates that the oil related economic curse is not inevitable. The presence of contract intensive economic norms can alter a curse into a blessing, and we identify the point at which the switch takes place. This has important implications for policy design in managing resource rents in developing countries; promoting contractual norms in the marketplace is growth enhancing.

Original languageUndefined/Unknown
JournalThe Extractive Industries and Society: an International Journal (print)
DOIs
Publication statusPublished - 11 May 2021

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