Catch-Up and the Curse of Oil

Seminar at the Institute of Economic Studies, University of Iceland, 20 February 2026, with Gylfi Zoega

Abstract

Because of convergence, initial income is an important explanatory variable in many growth regressions. Its omission can lead to misspecification bias that may seem to – but still does not – contradict the common albeit somewhat controversial empirical finding that natural resources, if not well managed, tend to depress incomes and growth. We illustrate the bias using simple algebra and cross-country regression analysis with two different data sets: old and new. We distinguish between natural resource abundance and dependence and propose a method for identifying the level of national income at which the net effects of natural resources shift from adverse to advantageous.