DP11553 Shifting Frontiers in Global Resource Wealth: The Role of Policies and Institutions

Author(s): Rabah Arezki, Frederik Toscani, Frederick van der Ploeg
Publication Date: October 2016
Keyword(s): discoveries, endogenous reserves, institutions, liberalization, market orientation, Natural resources
JEL(s): E00, F3, F4
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11553

This paper explores the impact of increased market orientation and improved institutions on global resource wealth using a novel dataset of major hydrocarbon and mineral discoveries. Guided by the predictions of a two-region model, we employ an instrumental variable strategy to test whether increased market orientation boosts discoveries. Our results indicate that if Latin America and sub-Saharan Africa were to adopt the same quality of institutions as the United States, discoveries worldwide would increase by 25 percent. Our results support the primacy of institutions by calling into question the commonly held view that resource endowments are exogenous.