In this paper, we examine data on U.S. GDP/Capita and natural resource share of GDP by state. We then run growth regressions and build on a previous model of dynamic equations to account for the spatial equilibrium that exists between U.S. states. Our results show that there exists evidence that overinvestment in oil and mining sectors has negative effects on state TFP growth, thus giving positive evidence for the existence of a natural resource curse between U.S. states.

Thesis advisor: Richard, S.J. McGowan / The Natural Resource Curse literature proposes to explain why and to what extent resource-wealthy countries have poor economic growth outcomes. Most research focuses on direct economic explanations, considering the role of governing institutions exogenously if at all. One emerging branch of explanations attempts to address this shortcoming, focusing on the indirect effects of institutional deterioration on economic outcomes in resource-rich countries. I add to this emerging literature by performing an econometric analysis of 16 oil-producing nations, examining the impact of national oil rent dependency on 12 dimensions of government quality from 1987-2008. I find that oil dependency has a significant negative impact on government quality in 11 of the 12 dimensions. I also find that controlling for preexisting levels of democracy does not significantly mitigate institutional resource curse effects. This runs counter to findings about economic effects, which tend to disappear when democracy levels are high. / Thesis (BA) — Boston College, 2010. / Submitted to: Boston College. College of Arts and Sciences. / Discipline: Economics Honors Program. / Discipline: College Honors Program. / Discipline: Economics.

"Development on the basis of extraction and export of natural resources is a dynamically complex problem. Empirical evidence shows that while some nations have been successful to translate natural resource wealth into long-term development but many have failed too. In this dissertation a system dynamics approach is taken to understand why this is happening and what strategies could facilitate a resource-based development process. In this regard, Mashayekhi’s model of oil-dependency of Iranian economy as one of the few relevant system dynamics examples is updated and revalidated. The results show that despite its capability in showing the dynamics of the problem from an economic perspective it lacks socio-political features that are necessary to address the most fundamental issues of resource-based development. It is shown that Katouzian’s theory of “arbitrary state and society” could fill this gap. The theory is, thus, translated into a system dynamics model so that it could be tested for internal consistency and used for policy analysis. The model is able to explain long-term socio-political-economic instability of a resource-dependent society. On the basis of Mashayekhi’s model, Katouzian’s theory, and other fundamental explanations of natural resource dependency that are available from the literature, a generic eclectic model is developed. The model has gone through a comprehensive list of confidence-building tests. Controlled experimentation through Monte Carlo simulations show that, on the contrary to the current belief, it is unlikely that natural resource wealth be harmful for social welfare. Results also revealed that rule of law is a crucial factor that affects trajectory of the socio-political-economic development. Other findings are as follow. Civil resistance (disobedience) can be harmful for the system in the long-run. While sanctions could affect the economy it has barely an impact on socio-political settings of a society. Finally, wage stabilization, facilitation of social mobility, and privatization of natural resource revenues within certain limits) could help the resource-based development to achieve better outcomes."

"Development on the basis of extraction and export of natural resources is a dynamically complex problem. Empirical evidence shows that while some nations have been successful to translate natural resource wealth into long-term development but many have failed too. In this dissertation a system dynamics approach is taken to understand why this is happening and what strategies could facilitate a resource-based development process. In this regard, Mashayekhi’s model of oil-dependency of Iranian economy as one of the few relevant system dynamics examples is updated and revalidated. The results show that despite its capability in showing the dynamics of the problem from an economic perspective it lacks socio-political features that are necessary to address the most fundamental issues of resource-based development. It is shown that Katouzian’s theory of “arbitrary state and society” could fill this gap. The theory is, thus, translated into a system dynamics model so that it could be tested for internal consistency and used for policy analysis. The model is able to explain long-term socio-political-economic instability of a resource-dependent society. On the basis of Mashayekhi’s model, Katouzian’s theory, and other fundamental explanations of natural resource dependency that are available from the literature, a generic eclectic model is developed. The model has gone through a comprehensive list of confidence-building tests. Controlled experimentation through Monte Carlo simulations show that, on the contrary to the current belief, it is unlikely that natural resource wealth be harmful for social welfare. Results also revealed that rule of law is a crucial factor that affects trajectory of the socio-political-economic development. Other findings are as follow. Civil resistance (disobedience) can be harmful for the system in the long-run. While sanctions could affect the economy it has barely an impact on socio-political settings of a society. Finally, wage stabilization, facilitation of social mobility, and privatization of natural resource revenues within certain limits) could help the resource-based development to achieve better outcomes."

This study investigated the effect the price of oil has on enabling political establishments to maintain their presence within the business environment. The study consists of three different case studies with each of the states (Saudi Arabia, Iran and the United Arab Emirates) being chosen based upon their level of state involvement within the business community. Each case study investigated whether the price of oil had any effect on influencing the amount of political involvement within the business community, property rights or trade freedom. The findings for all three case studies suggest that the price of oil has little to no effect on determining the amount of influence the state possesses within the business environment. Based on the results of this investigation, recommendations were made to improve the United States relationship with each country. Additional analysis and recommendations were made concerning the future economic impact of Iraq relying solely on oil as its revenue source.

The natural resource curse paradox has given rise to a wide range of explanations, which look at the economic, social and political characteristics of resource-rich countries. This paper focuses on the political economy of natural resources and finds that controlling for sociopolitical factors eliminates the natural resource curse. The analysis then turns to these sociopolitical factors and examines the significant, complex and varied effects of democratization on economic growth in general, as well as in resource-rich countries in particular. I conclude that the type of institutions needed for economic development in resource-rich countries are not specific to either democratic or autocratic systems, but are equally likely to be adopted by either regime, so that no one ideology is more suitable than the other. A corollary to this, however, is the case of weak democracies or low democratization levels. Such states are unable to adopt the necessary strategies and institutions and, thus, pose the greatest threat to economic growth in resource-rich countries. On the other hand, highly autocratic systems in resource-rich countries, such as those in Bahrain and UAE, or perfectly democratic systems, such as those in Norway and Iceland, utilize resources more efficiently for economic development.

To establish the economic impact of petroleum in the UK, this paper uses the synthetic control method. By constructing an artificial UK economy without oil, from the donor pool of OECD economies, it establishes the counterfactual time path of capital stock the UK would have had if it lacked the petroleum endowment. Comparing the observed time path of capital stock with its counterfactual, one can witness that the petroleum extraction has reduced the UK’s capital stock with an average of 17 % since 1970, despite the UK having arguably the best quality of institutions. Dose-response tests suggest that it is possible to attribute the impact to the petroleum production. Performed robustness and sensitivity tests together with several falsification tests show that the result is robust to alternations in the donor pool, the predictor variables and alternative explanations. The finding raises a question regarding the quality of institutions, advanced by Mehlum, Moene and Torvik and claimed that the resource curse only occurs in economies with low quality of institutions.

The natural resource curse is a widely debated phenomenon usually proposing a connection between large extractive resource wealth and substandard economic performance. This paper concerns the connection between large extractive resource wealth and the potential for its effects on long term political stability. Using Venezuela as a case study, this paper delves into the political history of Venezuela, plagued by endemic political instability, and attempts to test the political aspect of the resource curse, analysing history with a focus on the oil industry. The conclusion is that there is a clear connection between oil price volatility and political instability, but only evident starting in the latter half of the 20th -century. Further research into specific regimes, eras, as well as comparative analyses between Venezuela and other states is required to provide additional answers in regard to specific causes for political instability in the early 20th -century and the pre-oil period.

The problem of weak economic development in Nigeria despite a substantial inflow of revenues from oil exports especially from the early 1970s and other subsequent periods is an important issue to examine. This outcome presents a number of problems for any government regime in Nigeria seeking to provide solutions to enable the country to escape the adverse effects of natural resource wealth. At present, the Nigerian government is still struggling to find solutions to tackle the deteriorating state of affairs, particularly in terms of unemployment, rising food prices and internal security. The main aim of this study is to help understand the dynamic relationship between natural resource wealth and economic development. This research study analyses the trajectory of economic and political development in Nigeria over the period 1960 to 2010. This study employs historical political economy and empirical approaches in examining the relationship between oil wealth and economic development. This method distinguishes the study from others carried out in the literature, particularly from those on Nigeria where the common approach in this strand has been to examine the relationship using economic theories alone. The rationale for the approach employed in this study is that Nigeria has its own unique development in terms of politics, which has been influenced by the social structure and colonial history of the country and thus the impact of oil on economic growth should be investigated separately using a historical and empirical approach so as to capture time trend interactions between societal issues, politics and economic outcomes. First, this study examined the relationship between oil and economic performance using social, political and economic factors such as ethnic and regional differences, political instability, changes in ownership structure of the oil sector and government expenditure, which is largely financed by oil revenues. Next, the research empirically examined the impact of these factors on economic sectors such as agriculture and manufacturing. Afterwards, it analyses the impact of political and economic events in the preceding periods on the current or subsequent period that coincided with a return to democratic rule on major economic sectors. In general, the results show that the period, which marked a transition to a stable political regime, has no impact on economic performance from 1999 - 2010. Implicitly, this means that democracy in isolation is not a process that accompanies economic development and that a strong policy which could foster national unity and overcome regional and ethnic differences is needed. In order to promote sound economic development this policy should be dynamic, specific and directed to the promotion of a national agenda that will target and benefit important sectors such as agriculture and manufacturing through creating forward and backward linkages in a multiplier effect.

This thesis studies the poor development performance of resource-rich developing economies, known as the resource curse. In the first chapter we provide a comprehensive literature review of the topic and the channels through which resource abundance can result in the resource curse. Issues of corruption and governance have been emphasised to be the main driver of the resource curse. This has been illustrated by a negative relationship between resource abundance and corruption control in the literature. However, there is a gap in how natural resources facilitate corruption. In the second chapter, using empirical analysis, we study the role of taxation in the relationship between natural resources and corruption. Taxation is usually seen as a social contract between citizens and government -- people pay taxes and in return they hold their government accountable for efficient allocation of their taxes. Resource abundance shifts the reliance of government from tax incomes to resource rents. People therefore, have no sustainable mechanism to hold their government responsible for corruption and wrongdoings inside public institutions. Using different econometric methods, Pooled OLS, Fixed Effects and 3SLS, our results show that natural resource revenues crowd out incomes from tax revenues. Meanwhile, taxation has a positive and significant impact on the control of corruption throughout our analysis. The results suggest that resource-rich developing countries should invest in building their tax systems to increase their non-resource tax revenues. This will increase state capacity and demand for accountability in the public sector among citizens and hence decreases corruption. Related to our second chapter, in the third chapter we study a cash transfer programme, known as oil-to-cash, which has gained support as a tool to re-establish taxation and fight corruption. Under such a plan, resource revenues are distributed directly among the public and then each citizen is taxed optimally. Through this, government relies directly and fully on its citizens for its income. Hence, taxation is reinstated and the social contract is revived. Within a general equilibrium model we show how this happens and what the implications are of the oil-to-cash programme for economic growth. Our results clearly show how corruption results in a resource curse. Furthermore, the model explains the variation that is seen in the degree of the resource curse across countries. The study also analyses the practical barriers of the oil-to-cash plan. The study suggests that parallel to (or even prior to) such a plan countries need to invest in building their tax system and increasing their administrative capacities.