Oil Curse, Economic Growth and Trade Openness

Abstract

An important economic paradox that frequently arises in the economic literature is that countries with abundant natural resources are poor in terms of real gross domestic product per capita. This paradox, known as the “resource curse,� is contrary to the conventional intuition that natural resources help to improve economic growth and prosperity. Using panel data for 95 countries, this study revisits the resource curse paradox in terms of oil resource abundance for the period 1980–2017. In addition, the study examines the role of trade openness in influencing the relationship between oil abundance and economic growth. The study finds that trade openness is a possible avenue to reduce the resource curse. Trade openness allows countries to obtain competitive prices for their resources in the international market and access advanced technologies to extract resources more efficiently. Therefore, natural resource–rich economies can reduce the resource curse by opening themselves to international trade.