The Resource Curse: A State and Provincial Analysis

A puzzling piece of empirical evidence suggests that countries rich in natural resources tend to have dismal economic performance. This paradigm has come to be known as the “resource curse”. This paper deals with the role of institutional quality in explaining the transmission mechanism of the resource curse. I attempt to explain this phenomenon by using the index of economic freedom developed by the Fraser Institute as a proxy for the quality of institutions. The outcomes of the linear and non-linear interactions between resource abundance and institutional quality turn out to be the key elements that determine the intensity, if existent, or otherwise of the resource curse. Rather than look at cross country data like many others, I focus on the 10 provinces and 50 states in Canada and the US respectively over the 2000-2005 period.