“The relationship between resources and economic growth is related to a number of topics that recently is getting a lot of attention...”

This paper is part of an expanding literature on the consequences of rich natural resource wealth on a country’s economic growth. It addresses the resource-curse puzzle, which means that countries rich in resources tend to have poor growth performance. The relationship between resources and economic growth is related to a number of topics that are recently receiving a lot of attention, ranging from civil wars in diamond-rich countries to management of resource income in so-called sovereign wealth funds.

We address an important and well-known puzzle and try, empirically, to identify the underlying mechanisms leading to the puzzle.

By comparing the growth performance of a large number of countries over the past 40 years, we found that rich resources only hampered growth in countries with weak legal and political institutions. We conclude that the mix of rich natural resources and weak institutions makes it profitable for a large part of the economy’s other productive resources to be directed—via corruption, crime, or lobbying—towards attempts to grab the country’s natural resources. In this way, the remainder of the economy will be seriously harmed.

Our research is motivated by pressing social and political questions and the analysis emphasizes the primary importance of social or political mechanisms for economic development.