This thesis studies the relationship between natural resources and economic wealth, in twoparts. Previous studies have found a negative relationship between natural resources andeconomic wealth, a phenomenon known as the curse of natural resources. Later studiesreject the resource curse, in its simplest form, as their findings show a positive relationshipwhen measuring economic wealth by GDP levels instead of growth. The argumentis that the inclusion of initial GDP, when using GDP growth as measurement, will resultin biased estimates due to the short time horizon. However, a third group of studiesadvocates the existence of a resource curse conditional upon institutional quality. In thiscase, resource endowment only affects the economic welfare negatively if the quality ofinstitutions is sufficiently bad.In this thesis the measurement of economic wealth is further expanded. Taking intoaccount that extraction of resources is a negative flow of the nation’s wealth gives abetter understating of the change in welfare, and removes some of the positive bias ofexploiting natural resources on economic wealth. An empirical analysis, utilizing data ona total of 263 countries in year 2000, is conducted to find whether the resource curse isstill rejected when including depletion of natural resources to the analysis. None of theestimation methods or model specifications in this thesis are able to confirm the existenceof a resource curse, and in its simplest form the rejection is supported. Also theconditional resource curse is rejected by the data material, meaning that countries withpoor institutions do not seem to have a more negative, or less positive, impact of naturalresources on GDP levels adjusted for depletion of natural resources than countries withgood institutions. However, be aware of the limitations of the data, in particular theabsence of a truly exogenous variable of resource endowment.
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