Catch-Up and the Curse of Oil

New paper with Gylfi Zoega

Abstract

Because of convergence, initial income is an important explanatory variable in many economic growth regressions. The omission of initial income from growth regressions can lead to misspecification bias that may seem to but still does not contradict the common but even so somewhat controversial empirical finding that natural resources, if not well managed, tend to depress incomes and discourage long-run economic growth. We illustrate the effects of omitting initial income by simple algebra as well as by cross-country regression analysis of the effects of natural capital on economic performance and growth using two different sets of data, old and new.