The resource curse revisited: A Bayesian model averaging approach

• Published in: Energy economics 2018-02, Vol.70, p.170-178
• Main Authors: Arin, K. Peren, Braunfels, Elias
• Format: Article
• Language: English
• Subjects: Bayesian analysis; Bayesian model averaging; Crude oil; Dependence; Dependency; Economic development; Economic growth; Energy economics; Growth; Interaction terms; Natural resource curse; Natural resources; Oil; Panel data; Petroleum; Rents; Robustness; Uncertainty
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2017.12.033

The evidence for the effects of oil rents on growth is mixed, a result which can be explained with model uncertainty. We address the issue using Bayesian Model Averaging techniques and an updated cross-country data set for long-term growth in the period 1970–2014, including 91 countries and 54 potential growth determinants. We do not find empirical evidence for the existence of a “natural resource curse” in our sample. On the contrary, our results suggest a robust positive effect of oil rents on long-term economic growth. We then introduce interaction terms of oil rents with potential conditions under which oil dependency can lead to sub-standard growth. The results indicate that the positive effect of oil rents may be conditional on the quality of institutions. We test the robustness of our results using a panel data set and find neither a curse nor a positive effect of oil rents on short- to medium-run growth. •We investigate the effects of oil rents on medium and long-term economic growth.•We use Bayesian Model Averaging techniques to address model uncertainty and an updated cross-country data set.•We find no empirical evidence for the existence of a "natural resource curse", rather a positive effect in the long-run.•Robustness checks with panel data find neither a curse nor a positive effect of oil rents on short to medium-run growth.