The effect of natural resource on economic development: Experiences of selected countries

The endowment of natural resources effect countries in different ways. Recently, how and how much natural resources effect the growth is intensively examined in the literature. The traditional mainstream of pre-1980s indicated that natural resources abundance would promote economic growth. However, there has been a huge literature after the 1980s on 'resource curse' which reveals that the countries with abundant resources seem to have less economic growth performance compare to those of countries with the scarce endowment of natural resources. Authoritarian regimes and bad institutionalizations, increasing indebtedness and volatility, civil war and political instability and Dutch disease are seen among main explanations of natural resources curse. In this study the relationship between natural resource endowment and economic performance was analyzed using the annual panel data for the period of 2000-2010 of selected 12 countries (Iran, Iraq, Kuwait, Qatar, Saudi Arabia, Nigeria, Azerbaijan, Kazakhstan, Russia, Brazil, Mexico, Venezuela). Natural resources endowment was proxied by crude oil, while countries were selected according to their crude oil abundance and exports. Besides, when selecting oil exporting countries, their dispersion over different regions was taken into account. The variable of real gross domestic product (GDP) per capita was taken as a main indicator of countries' economic performance. Explanatory variables are crude oil export volume, crude oil price, CPI and real exchange rate. The variables of price level and real exchange rate are also aded to the model to reveal the importance of macroeconomic stability and increase the predictive power of the model. In this context, with the empirical analyses for all selected countries in general, the study investigated how much and in which direction these explanatory variables affect the real GDP per capita. The empirical results reveal that real GDP per capita is positively associated with real GDP per capita, crude oil export volume, crude oil prices and CPI, while there is a negative relationship with real exchange rate. Main results from analyses reveal that oil production tends to contribute to the economies in the countries investigated. However, even the crude oil exports and crude oil prices increase the GDP per capita, this increase seems to be very slight. Crude oil export revenues have been crucial for the countries countries examined. Therefore, these countries are expected to use their crude oil resources effectively and improve their economic performance. Because the positive effects of crude oil export and prices on GDP per capita are found very slight, the results do not support the evidence about the realization of this expectation. The overall evidence support the 'resource curse hypothesis' which indicates that natural resource abundant countries tend to have less economic growth compare those of countries with scarce resources. Overall findings emphasize the importance of policies to be able to use this resources efficiently and prevent the possible factors that can cause resource curse for the countries investigated.