Energy Sources, Part B: Economics, Planning, and Policy

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Petroleum endowment and economic growth:

examination of the resource curse phenomenon

Foued Saâdaoui & Rafik Jbir

To cite this article: Foued Saâdaoui & Rafik Jbir (2021): Petroleum endowment and economic
growth: examination of the resource curse phenomenon, Energy Sources, Part B: Economics,
Planning, and Policy, DOI: 10.1080/15567249.2021.1928332

To link to this article: https://doi.org/10.1080/15567249.2021.1928332

Published online: 23 May 2021.

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ENERGY SOURCES, PART B: ECONOMICS, PLANNING, AND POLICY
https://doi.org/10.1080/15567249.2021.1928332

Petroleum endowment and economic growth: examination of the

resource curse phenomenon
a,b,c d,e
Foued Saâdaoui and Rafik Jbir
a
Department of Statistics, Faculty of Sciences, King Abdulaziz University, Jeddah, Saudi Arabia; bFaculté des Sciences,
Laboratoire LR18ES15: Algèbre Théorie de Nombres et Analyse Non-Linéaire, Tunisia; cUniversité de Sousse, Institut
des Hautes Etudes Commerciales (IHEC),Tunisia; dCollege of Islamic Economics and Finance, Umm Al-Qura University,
Saudi Arabia; eUniversité de Gabes, Institut Supérieur de Gestion (ISG),Tunisia

ABSTRACT KEYWORDS
This paper examines the impact of oil resources endowment, measured by Oil endowment; economic
proven reserves and oil rents, on the economic growth in the presence of growth; resource curse;
quality of governance factors. To address this issue, we first summarize the Dutch disease; panel data
econometrics
previous research by reviewing, from the economic literature, the main
explanations of what many regard as ‘curse’ of petroleum resource and, in
a larger context, evoke the different relationships between natural resources
and economic growth. Then, a panel data econometric model is fitted to
a dataset consisting of 40 countries and sampled over a period of 17 years.
The empirical results confirm, on one hand, the main hypothesis that proven
oil resources negatively explain the economic growth. On the other hand, it
is shown that oils rents are slightly positively correlated to the economic
growth. The manipulation of the set of explanatory variables in the model
does not change this overall negative correlation between growth and
petroleum endowment, thus proving the counter-intuitive assumption that
oil wealth limits the opportunities for economic growth. The results also
confirm the old hypothesis that natural resources are negatively correlated to
the countries’ GDP through the quality of their economic and financial
institutions.

1. Introduction
It is often considered that oil-rich countries are favored over other countries since they have easier
access to an important input which is its oil income. As a result, these oil-rich economies are expected
to grow faster than others. In other words, the endowment of oil resources must be a “blessing” for
these economies. However, the “resource curse” hypothesis seems to prove the opposite, and the
positive relationship between economic growth and the endowment of oil resources seems not to be
enough obvious. Several explanations have been presented by academia to illustrate the aforemen­
tioned negative correlation, the most important of which is the “Dutch Disease” principle and the
volatility of oil prices. Nowadays, oil has become a pillar of the global economy. It plays a key role in
industrial production and is a vital energy source in the world. This is because it is directly tied to our
daily life (warming up, cooling, transportation, agriculture, manufacturing goods, etc.). The analysis of
the relationship economic growth – natural resource (oil resources) has been the subject of several
empirical studies (Askari and Jaber (1999); Atkinson and Hamilton (2003); Corden and Neary (1982);
Ding and Field (2005); Jbir (2013)1; Polterovich, Popov, and Tonis (2010); Sachs and Warner (1997)).

CONTACT Foued Saâdaoui foued.saadaoui@gmail.com Department of Statistics, Faculty of Sciences, King Abdulaziz
University, Jeddah, Saudi Arabia; Faculté des Sciences, Laboratoire LR18ES15: Algèbre Théorie de Nombres et Analyse Non-Linéaire,
Tunisia; Université de Sousse, Institut des Hautes Etudes Commerciales (IHEC),Tunisia
1
See Jbir (2013) for a recent literature review about the Dutch disease theory.
© 2021 Taylor & Francis Group, LLC
2 F. SAÂDAOUI AND R. JBIR

The first studies in this context were conducted by Gregory (1976), Corden and Neary (1982),
Krugman (1987) with findings evidencing the effects of natural resource endowment on significant
economic changes in some economies. Corden and Neary (1982), for instance, focused on the analysis
of medium-run effects of asymmetric growth on resource allocation and income distribution. Sachs
and Warner (1995b) for instance, have analyzed the relationship between natural resources and
economic growth in a sample of 97 developing countries from 1970 to 1989. They used some variables
such as the average annual growth rate, the share of investment in GDP, variable aperture, the
economy to the outside and the primary export to GDP ratio. Their main findings were that the
higher natural resource exports to GDP ratio tend to have low growth rates during the period
1971–1989. As in their earlier work, Sachs and Warner (1997) found that higher endowments of
natural resources for African countries are significantly correlated with slower growth. Leite and
Weidmann (1999) show that resource endowments stimulate corruption and negatively influence
growth. In this case, having strong institutions is of paramount importance. Focusing on Middle
Eastern oil-exporting countries, Askari and Jaber (1999) proved that there exists a widespread mis­
allocation of resources and a divergence from their essential goal of economic transformation. Using
cross-country regressions, Atkinson and Hamilton (2003) have tried to estimate the resource-growth
relationship by introducing a new variable that is the actual savings rate. They found that countries
that are characterized by an endowment of natural resources recorded negative growth rates. Sala-
i-martin and Subramanian (2003) have also shown that the quality of institutions is a transmission
channel of endowment on natural resources. Papyrakis and Gerlagh (2004) sought to study the direct
and indirect relationships between economic growth and endowment of natural resource. Their
estimates show that the share of mining production in GDP negatively affects economic growth.
Isham et al. (2003) argued that natural resource endowments and the export structure influence the
quality of institutions that are one of the determinants of growth. Stijns (2005) found a positive
relationship between the various determinants of economic growth (savings rates, institutional quality,
rate of investment and education) and various indicators on the reserves of natural resources. Ding
and Field (2005) showed that the resource dependence has a negative effect on growth rates,
confirming the main results of the “resource curse” literature. The resource endowment, however,
has been proven to have a positive impact on growth. Bulte, Damania, and Deacon (2005) indicated
that the issue needs to be addressed more deeply than a simple correlation between natural resources
and economic growth. In their work, they give institutions and human welfare a prominent role in
explaining the “resource curse” hypothesis, which refers to the negative correlation between economic
growth and natural resources. Polterovich, Popov, and Tonis (2010) have shown that natural resources
and inflation are negatively correlated and subsequently investment and economic growth. In general,
the literature has shown that the endowment of resources can be a source of many difficulties for
countries. This situation, known as the Dutch Disease (Corden and Neary (1982), Krugman (1987)),
can be the result of many cases. It can result from the abundance of natural resources, a massive
increase in foreign currency earnings, the expansion of the natural resources sector (discovery, export
or production), foreign aid to developing countries and the massive influx of foreign direct
investment.
As Van Der Ploeg (2011) exposed in this literature review, some countries have benefited from
the endowment resource, while others have experienced some difficulties especially those who have
a bad quality of institutions, rule of law and the low degree of financial development, corruption,
etc. The paper has evoked the case of many countries, such as Nigeria, Iraq, Libya, and Norway, and
a significant relationship between resources endowment and the economy has been proven.
Nigeria, for instance, is one of the potential oil producers worldwide (oil revenue per capital);
however, this African country is known to have many socio-economic problems. The same thing
applies to nations such as Islamic Republic of Iran (IRI), Iraq, Venezuela and Libya, which, despite
of their high levels of oil production, these countries have shown several difficulties in their
economic growth because of their low level of rule and law respect, slow financial development
and high corruption. Skaperdas (2002) noted that resource-rich countries were often places of
 ENERGY SOURCES, PART B: ECONOMICS, PLANNING, AND POLICY 3

violence, theft, and looting habitually financed by rebel groups and competing warlords. In such
a situation, additional resources-related incomes are not suitably pumped into other sectors to
diversify the economy. This leads to the stagnation or regression of the economic growth. From
a statistical point of view, it is quite clear that the countries that own natural resources with
a significant growth rate had in fact diversified their economy in sectors such as the industry,
telecommunications, finance, tourism, education and innovation. On the other hand, countries
suffering from economic difficulties would have had difficulty in appropriately reinvesting their
incomes. It is therefore a matter of resource income management and reinvesting within the
various economic sectors. Furthermore, resource-rich countries have lost the competitiveness of
non-oil exports due to relative price movement, as shown by the Dutch disease model (Sala-
i-martin and Subramanian (2003)). Harding and Venables (2010) used panel data for 135 countries
over a 32-year period between 1975 and 2007 to show that the response to an endowment of
resources was to save about 30%, to reduce non-resource exports by 35 to 70% and to increase non-
resource resources imported from zero to 35%. For Mansoorian (1991), resource endowments
tended to encourage countries to overbid in borrowing, which contributed to worsening economic
difficulties.
The recent literature also includes a number of fresh works on the relationship between fossil
energy and the economic slowdown. Larsen (2006) explained how deliberate macroeconomic policy,
the arrangement of political and economic institutions, a strong judicial system, and social norms
contributed to let Norway escape the resource curse and the Dutch disease phenomena for more than
two decades. Based on the resource curse hypothesis, Shao and Qi (2009) analyzed the correlation and
transmission mechanisms between energy exploitation and economic growth. Their results revealed
that there is a statistically significant inverse relationship between energy exploitation and economic
growth, which indicates that the resource curse effect from energy exploitation has appeared evidently
since the 1990s. Jbir and Zouari-Ghorbel (2011) used a multidimensional time-series model to
examine the effect of recent increases of oil price on the key macroeconomic variables in Algeria.
Their findings indicated that the inflation increase due to oil price shock is the main cause of the real
exchange rate’s appreciation in the short term. Such a real appreciation involved a spending effect,
which, according to the authors, could be at the origin of the Dutch Disease. Jbir (2013) studied the
phenomenon of Dutch disease in the context of an increase in oil prices. Using an organic combina­
tion of conceptual and mathematical models for assessing the impact of resource dependence on
human capital and growth, Shao and Yang (2014) proved the possibility of a co-existence of the
phenomena of resource curse and resource blessing. Benramdane (2017) employed autoregressive
models to investigate the impact of oil prices volatility on economic growth in Algeria. Her results
proved that the negative effects of oil price volatility offset the positive impact of oil boom, which is
responsible for driving the “resource curse” paradox rather than oil abundance. Rustamov and
Adaoglu (2018) used the same tools for showing that production cost of oil and oil prices negatively
cause the Russian economic growth, which also supports the resource curse hypothesis. Li et al. (2019)
investigated the effect of the rationalization and upgrading of manufacturing structure on carbon
dioxide emissions in China, based on the perspective of natural resource dependence. Their results
indicated that the ratio of industrial output to GDP is negatively correlated to the restricting effect of
resource dependence on the emissions reduction of manufacturing structure. Shao et al. (2020)
showed that natural resource sector boom has a negative effect on the development of both local
and neighboring manufacturing sectors within China, suggesting that the regional Dutch disease
phenomenon exists at China’s provincial level. Involving factors of financial development and quality
of governance, other recent works have tried to prove a certain model confirming the curse of natural
resources. Kassouri, Altıntaş, and Bilgili (2020), for instance, investigated how the level of democratic
accountability can affect the relationship between oil prices and financial development. The authors
found that proper democratic institutions are likely to neutralize the curse in the financial sector.
Mlachila and Ouedraogo (2019) tested whether the shocks to commodity prices can lead to lower
financial development. Their results showed strong evidence of the financial development curse
4 F. SAÂDAOUI AND R. JBIR

through the channel of commodity price shocks. The authors also proved that the impact of these
shocks can be mitigated through good quality of governance.
In this paper, we examine the impact of oil resources endowment, measured by proven reserves and
oil rents, on the economic growth in presence of quality of governance factors. In order to take into
account the institutional quality (corruption, degree of financial development, etc.), as suggested by
Van Der Ploeg (2011), we introduce the following variables: Rule of law, government efficiency,
investment rate and openness for a diverse sample of countries. Indeed, countries in which the
economy is open and where governments are required to accept the rule of law grow faster, while
countries with poor institutions, bureaucratic and undemocratic regimes suffer slower growth. The
other specificity of our model is that, among the regressors, it includes a couple of variables to describe
the oil endowment: oil rents as well as proven reserves. Considering the two variables as factors of the
endowment of countries in petroleum resources does not imply that they are equivalent. On the
contrary, the objective of simultaneously including them was to enrich the model with factors relating
economies to the possession of petroleum resources. It is noticeable that, in the literature, the two
factors have already been considered as regressors of GDP (Alexeev and Conrad (2009); Matallah and
Matallah (2016)), but each factor has been considered independently. A panel data econometric model
is fitted to a sample of 40 countries over a period of 17 years. The empirical results confirm, on one
hand, the main hypothesis that oil resources negatively affect economic growth. On the other hand, it
is shown that oils rents are slightly positively correlated to the economic growth. The manipulation of
the set of explanatory variables in the model does not alter the sign and significance of the variables
measuring the petroleum endowment, thus proving the counter-intuitive assumption that the oil
wealth limits opportunities for growth. The results also confirm the main hypothesis that natural
resources generally affect the growth of countries in relation with the quality of their institutions.
The remainder of this paper is organized as follows. Section 2 reviews the Dutch Disease model.
Section 3 explains the empirical methodology and reports the results. The last section is
a concluding one.

2. The Dutch disease model

The Dutch disease term has appeared in “The Economist” magazine in 1977 following the discovery of
new oil fields in the UK and following the outbreak of the economic debate about the challenges facing
the economy of Columbia. However, this term has been firstly used to illustrate the economic
experience of the Netherlands following the discovery and exploitation of natural gas reserves
extracted. Dutch disease refers to the contradiction that may exist between, on the one hand, the
favorable external position resulting in a large surplus external balance suggesting an increase in the
savings rate and the building of a strong currency, and on the other hand, the internal adverse
economic conditions accompanied by a deteriorating economy (reduced production levels, reduced
investment and profits, as well as the increase in the unemployment rate).
Following the increase in oil prices or the discovery of a new oil deposit, oil revenues are increasing,
which is pushing up the real exchange rate of the currency. The increase in the exchange rate will cause
the loss of competitiveness of other non-oil exports sector. Therefore, the theory of Dutch disease
explains the causes of the disappearance of the non-hydrocarbon sector in the oil-exporting countries.
In fact, this theory explains the relationship between the dependence of economy of oil revenues and
low economic growth observed in these countries. According to the Dutch disease model of Corden
and Neary (1982), there are two real effects (the spending effect and movement resource effect)2 that
will be at the origin of economics difficulties. Generally, the Dutch Disease model has been used to
analyze the adverse effects of Hicks-neutral improvement in technology or a new discovery of oil or
gas on the exporting country, but if we assume the oil price increase is as the origin of boom, in
addition to the two traditional effects (spending effect and movement resource effect), we should add
2
See Corden and Neary (1982).
 ENERGY SOURCES, PART B: ECONOMICS, PLANNING, AND POLICY 5

the domestic absorption effect,3 as noted by Jbir (2013). As this study is interested in the impact of
petroleum resources endowment on economic growth, only the spending and movement resource
effects are considered. In what follows, we will present briefly these two effects. Following the
hypothesis of the Dutch disease model, we considered three sectors in economy. The booming sector
or energy sector (ES), the lagging sector or manufacturing sector (MS) and the non-tradable sector or
service sector (SS). There is a flexibility of price in the non-traded sector and the goods of this sector
are normal goods (the income elasticity of demand is positive).

2.1. Spending effect

This effect means that the sector that is booming (ES) leads to an increase in the income of the
economy. If all or part of additional income is spent, there is an increase of non-tradable goods price
because traded goods are costlessly traded and so have a fixed price. Therefore, the factors of traded
goods will be attracted by the sector of non-traded goods and this rise of the non-traded good price
decreases their price relative to the prices of traded goods, which leads to an appreciation of the real
exchange rate. This appreciation improves the production in the non-traded goods sector and decrease
a production of manufacturing sector (the traded goods sector). Consequently, the economic growth is
potentially harmed if autonomous productivity growth in the service sector is assumed to be below
manufacturing.

2.2. The resource movement effect

In addition to the spending effect, the boom in energy sector leads to a resource movement effect,
which we can summarize as follows. The analysis of the effect of the resource movement in goods
market must take account of these movements on the factor’s market. In factor markets, this effect
results in the movement of the mobile factor (labor) alone between sectors because the capital factor is
assumed specific. Indeed, the gap between demand and supply per sector leads to a gap in wages by
sector, this gap in wages attract the labor for higher wages sector. The rising of the energy price sector
(ES) increases the labor demand in this sector. Because according to the Dutch Disease theory, the
economy is supposed to be in full employment, and labor supply is being fixed, this increase in the
labor demand leads a fall of labor for the other sectors (MS and SS) and therefore their production
dropping. Finally, the resource movement effect tends to lower the production of the service sector
(SS), while the spending effect tends to increase it and the production of the non-traded goods sector
can either increase or decrease. However, according to Corden and Neary (1982), if we combine the
two effects (spending effect and resource movement effect), we always have an appreciation of real
exchange rate and a reduction in the production of the traded goods sector (MS), and therefore,
a slowdown of economic growth.

3. Empirical study
In order to identify the impact of the oil resources’ endowment on the economic growth, we model the
relationship between the GDP growth rate and the various factors of oil endowment using a panel data
method. The panel econometrics methodology is chosen because of its richness (assumptions and
tests, computer interfaces) and the flexibility of its mathematical models as well as their ability to
properly adjust this kind of multidimensional data. A sample of 40 countries for a period ranging from
2002 to 2018 are used in this empirical study. For this purpose, we estimate the following equation by
the least squares regression method:

3
For more detail for domestic absorption effect, see Corden (1984).
6 F. SAÂDAOUI AND R. JBIR

GDPit ¼ αit þ β1 LPORit þ β2 ORit þ β3 OEit þ β4 LIRit þ β5 RLit þ β6 GEit þ εit ; (1)

where i = 1, . . . , n = 40 is the countries’ index, and t = 2002, . . . ,2018 is the time index (in years). The
exogenous variables are abbreviated as follows:

● GDP: GDP yearly growth

● LPOR: Log-Ratio of Proven Oil Reserves/1000 inhabitants;
● OE: Rate of Openness of the Economy;
● LIR: Logarithm of Investment Rate as measured by gross fixed capital formation;
● OR: Oil Rents
● RL: Rule of Law
● GE: Government Effectiveness

● εit : Model’s random term corresponding to the nation i at year t, with εit
= uit + vit; i.e., consisting
of two components, the specific unobservable fixed effect for each country uit and the temporal
effect vit.

The data set has been collected from several sources. Table 1 gives a detailed description of the
variables used in the model, including their definitions, measurements, and sources. It is notable that
the endogenous variable in the model is the economic growth assessed by the annual GDP growth rate.
Table 2 reports the descriptive statistics of the dependent variables and the regressors.
Our sample consists of 40 countries, including developed, emerging and developing countries. This
set can be classified into rentier and non-rentier countries. It is noticeable that a country is assumed to
be a rentier country if the share of oil rents in its GDP is greater than or equal to 5% and/or the share of
oil exports from the total exportation is greater than or equal to 90%. For non-rentier countries, we
have Gabon, Russia, Chad, India, Egypt, Uganda, Argentina, Canada and Congo. For rentier countries,
we have Saudi Arabia, Iraq, Algeria, Angola, Nigeria, United Arab Emirates, Iran, Qatar, Venezuela,
Ecuador, Libya, Indonesia, Gabon, Mexico, Kazakhstan, China, Nigeria, Vietnam, Azerbaijan, United
States, Australia, Brazil, Malaysia, Syria, Yemen, United Kingdom, Equatorial Guinea, Brunei, Oman,
Sudan, and Colombia.
As reported in Table 2, the arithmetic average of the GDP is about 5:15% per year. The maximal
value of 71% is observed in Equatorial Guinea in 1997, while the minimal value of 33:1% is
registered in Iraq in 2003. The neperian logarithmic transform of the oil reserve ratio (per 1000
inhabitants) is the exogenous variable of interest in the linear model. The average value of this variable
is about 4:8, and the minimal and maximal values are, respectively, -11:33 and 1:32. Before going
on to estimate the relationship between the GDP growth rate and the oil endowment, we check for the
existence or not of a multi-collinearity between the set of variables. For this aim, we simply present the
Pearson correlation matrix in Table 3. According to Kennedy (1998), a problem of multi-collinearity
exists when the correlation coefficients between the couples of variables exceed 0:8. The correlation
matrix based on the entire sample shows a positive correlation between the GDP growth rate and the
oil rents and the openness trade rate. This correlation is slightly above 0:3. On the other hand,
a negative small correlation is found between the growth rate and the three following variables:
ratio of proven oil reserves per 1000 inhabitants, government efficiency indicator and the rule of
law. The most important result to be noted is that of the GE and RL variables that were found highly
correlated. Therefore, one of these two variables will be eliminated at the estimation stage.
Then, we adopted a step-by-step methodology for choosing the appropriate exogenous variables. In
this strategy, exogenous variables are introduced sequentially instead of simultaneously. Four models
are to be considered. Model M1 expresses the GDP growth rate in terms of the ratio of proved reserves
of oil per 1000 inhabitants and oil rents. Next, we, respectively, introduce the variables « openness rate
» and « investment rate » to form the models M2 and M3. Finally, the only variable measuring the
quality of institutions is « rule of law», while the «government effectiveness » is firstly excluded from
 ENERGY SOURCES, PART B: ECONOMICS, PLANNING, AND POLICY 7

Table 1. Description of variables.

Variables Definition Measure Source
GDP growth rate The growth rate is an economic GDPyearN GDPyearN 1
World Bank
GDPyearN 1 � 100
indicator used to measure the
growth of a country’s economy
from one year to the next.
provenreserves
Share of 1000 Economic indicator used to measure1000inhabitant
Ratio calculated from
inhabitants in proven a country’s oil endowment. data collected from
reserves (measure the the Energy
endowment of oil Information Agency
resources) (EIA)
Openness rate Openness Rate measures the degree ðImportationþExportationÞ � 100 Index calculated from
GDP
to which nondomestic data collected from
transactions take place and affect the World Bank
the size and growth of a national
economy.
Investment rate Indicator measuring the level of This indicator has three basic World Bank
investment in a country components: residential
construction (purchase of single-
family homes and multi-unit
dwellings), nonresidential
construction (construction of
plants, office buildings and
commercial buildings) and
purchase machineries found in the
various factories of the country.
Oil rents Oil Rents are the difference between ðPV Þ�½ðMPÞ ðAPUC Þ� � 100- PV: World Bank
GDP
the value of crude oil production Production Volume
at world prices and the total costs - MP: Market Prices
of production. - APUC: Average Production Unit
Cost
Rule of law Indicator of the extent to which The value of this index varies Global Governance
agents trust and respect the rules between 2:5 (weak) and 2:5 Indicators of the
of society, and in particular the (strong). World Bank.
quality of contract enforcement,
property rights, the police and the
courts, as well as the likelihood of
crime and violence.
Government Captures perceptions of the quality The value of this index varies Global Governance
effectiveness of public services, the quality of between 2:5 (weak) and 2:5 Indicators of the
the civil service and the degree of (strong). World Bank.
its independence from political
pressures, the quality of policy
formulation and implementation,
and the credibility of the
government’s commitment to
such policies.

Table 2. Descriptive statistics.

Variables Observations Mean Std. Dev. Minimum Maximum
GDP 680 5.146 6.801 −33.100 71.000
LPOR 680 0.029 0.054 0.000 0.270
OR 680 19.895 18.273 0.100 80.600
OE 632 70.679 41.491 0.000 275.000
LIR 680 23.744 2.113 17.600 28.900
GE 640 −0.167 0.990 −1.970 2.100
RL 658 −0.275 1.018 −2.210 2.440

the model to avoid multi-collinearity problems. This last model is denoted model M4. We also
consider another model, which contains the same variables as M4, but rather we keep the «government
effectiveness » instead of the « rule of law». This model is denoted model M40 . Once appropriately
identified, a number of goodness-of-fit tests are performed to the models M1, M2, M3, and M4 . The
8 F. SAÂDAOUI AND R. JBIR

Table 3. Correlation matrix.

Variables GDP LPOR OR OE LIR GE RL
GDP 1.000 - - - - - -
LPOR −0.170 1.000 - - - - -
OR 0.348 0.078 1.000 - - - -
OE 0.302 −0.227 0.465 1.000 - - -
LIR −0.109 0.448 −0.531 −0.398 1.000 - -
GE −0.184 0.207 −0.471 −0.071 0.589 1.000 -
RL −0.178 0.207 −0.355 −0.068 0.518 0.935 1.000

Fisher significance test is used to test the overall significance of the parameters of each model. The
results show that all models are overall significant. Then, the Hausman’s test proves that all models
would be fitted with assumption of fixed effects. The Breusch-Pagan statistic is also calculated and
shows the existence of heteroscedasticity problem in all models. To correct the heteroscedasticity
problem, the Generalized Least Squares (GLS) regression is used. The approach of Swamy and Arora
(1972) is chosen to correct the variance-covariance matrix. Finally, we used the Wooldridge test to
check whether a serial correlation problem exists. The results of this test suggest the failing to reject the
null hypothesis of absence of first-order autocorrelations (all Chi-Squared p-values > 5%). All
estimation results are reported in Tables 4 and 5.
Tables 4 and 5 show that the coefficient corresponding to the ratio measuring the endowment of
countries on oil resources (proved oil reserves per 1000 inhabitants) is negatively significant in all
models (from M1 to M4), with a significance level that goes from 5%, for models M1 and M2, to 1%
for models M3 andM4. These results support the hypothesis that the endowment on oil resources is
negatively correlated to the GDP growth rate, which goes in line with results from previous studies,
such as Sachs and Warner (1995b), that suggest that countries with an abundance of natural resources
have a negative growth rate. This negative relationship persists even after the introduction of the main

Table 4. Generalized Least Squares (GLS) regression results.

(M1) (M2) (M3) (M4)
LPOR −16.577 −11.502 −16.099 −18.162
(0.042)*** (0.026)** (0.053)** (0.017)**
OR 0.197 0.155 0.163 0.154
(0.000)*** (0.000)*** (0.000)*** (0.000)***
OE - 0.040 0.046 0.039
(0.139) (0.000) (0.000)***
LIR - - 0.414** 0.689***
(0,052) (0.002)
RL - - - −0.718*
(0.099)
Constant 1.776 −0.495 −10.805** −16.750***
(0.014)** (0.808) (0.042) (0.003)
No. of Observations 631 631 599 599
R- Squared 0.138 0.166 0.178 0.200
Overall
R-Squared 0.109 0.135 0.124 0.1057
Within
R-Squared 0.294 0.342 0.387 0.462
Between
Wald Chi-Sq Test 71.290 90.710 89.780 97.570
Prob > chi2 (0.000) (0.000) (0.000) (0.000)
Hausman Test 16.230 19.390 28.190 32.920
Prob > chi2 (0.000) (0.000) (0.000) (0.000)
Wooldridge Test 0.032 0.041 1.247 13.501
Prob > F (0.8598) (0.8415) (0.2681) (0.2525)
Fisher Test 5.710 5.660 6.540 6.600
Prob > F (0.000) (0.000) (0.000) (0.000)
***, **, *, indicate significance of coefficients at levels 1%, 5% and 10%, respectively.
 ENERGY SOURCES, PART B: ECONOMICS, PLANNING, AND POLICY 9

determinants of economic growth such as the openness rate and the investment rate. On the other
hand, the openness rate coefficient is only significant in the model M4 with a positive sign. Thus, an
increase of 1% in the openness rate only results in an increase of about 0:4% in the GDP. The
coefficient associated to the investment rate is significant and positive in models M3 and M4, with
a significance level of 1% and 5%, respectively. The positive sign of the coefficient confirms that there
is a positive relationship between the rate of GDP growth and the investment rate. In fact, an increase
of one point in the investment rate is expected to increase the GDP rate by more than 0:6%. It is
notable that, the preliminary analysis, variables GE and RL were found highly correlated. Thus, we
only considered the rule of law, which is negative, with significance levels of 1% in model M4, and 10%
in model M3. Finally, the negativity of the constant of the model is statistically accepted. Its large value
exceeding 20 could be explained by the effect of omitted variables in the models. In other words,
other exogenous variables could be taken into account for better fitting the GDP. This could be one of
the future extensions in this direction. Finally, in order to test the robustness of the least squares model
estimation, the model M4 is re-estimated using a Restricted Maximum Likelihood (REML) method.
We also replace the variable RL with the variable GE to constitute a new model which we denote M40 .
As reported in Table 5, the signs of all variables remain the same. Even the coefficients remain very
significant and close to those obtained by the GLS method, which confirms their results and proves the
robustness of the estimate. It is noticeable that, the negativity of the coefficient of GE or RL seems to be
atypical, thus, this point deserves to be explored at greater. Therefore, we decided to add two
interaction terms between oil endowment and institutional quality in the regression model:
Interaction1 ¼ POR � GE and Interaction2 ¼ POR � OR � GE. Accordingly, the model becomes as
follows:
GDPit ¼ αit þ β1 LPORit þ β2 ORit þ β3 OEit þ β4 LIRit þ β5 RLit þ β6 GEit

β7 Interaction1 þ β8 Interaction2 þ εit ; (2)

It therefore becomes possible to assess whether the poor or better institutional quality comes to play in
terms of resource curse or resource blessing, rather than regarding institutional quality as control
variable. From this change, which GLS results are reported in Table 6, we could notice that the signs of
the coefficient relating oil resources and rents to GDP have stayed unchanged, while the coefficients of
the added interaction variables were positive for Interaction1 and negative for Interaction2. Since
Interaction 1 better shows the marginal effect of institution quality on the negative relationship
between GDP and POR, the interpretation is that the institutional quality comes to play in terms of
resource blessing. We also note that the control variables in this model are overall consistent with the
baseline regressions in Tables 4 and 5, which further proves the stability of the obtained estimates. It

Table 5. Restricted Maximum Likelihood (REML) estimation results.

Coefficient Std Err. P>|z| [95% Conf. Interval]
Model M4
LPOR −20.982*** 5.043 0.000 [−30.866; −11.097]
OR 0.141*** 0.018 0.000 [0.104; 0.177]
OE 0.037*** 0.007 0.000 [0.023; 0.051]
LIR 0.949*** 0.167 0.000 [0.620; 1.278]
RL −1.037*** 0.283 0.000 [−1.592 − 0.482]
Constant −22.627*** 4.286 0.000 [−31.027; −14.226]
Model M4
LPOR −21.750*** 5.059 0.000 [−31.667; −11.834]
OR 0.133*** 0.019 0.000 [0.095; 0.171]
OE 0.039*** 0.007 0.000 [0.025; 0.054]
LIR 0.987*** 0.175 0.000 [0.644; 1.331]
GE −1.129*** 0.326 0.001 [−1.768; −0.490]
Constant −23.418*** 4.452 0.000 [−32.145; −14.691]
***, **, *, indicate significance of coefficients at levels 1%, 5% and 10%, respectively.
10 F. SAÂDAOUI AND R. JBIR

Table 6. Generalized Least Squares (GLS) estimation of the model with the following interaction variables:
Interaction 1 involves LPOR and GE, while Interaction 2 involves LPOR, OR and GE. Overall significance
statistics: Wald χ 2 ð8Þ ¼ 104:560, Prob > χ 2 ¼ 0:000.
Coefficient Std Err. P>|z| [95% Conf. Interval]
LPOR –27.351*** 9.466 0.004 [−45.905; −8.796]
OR 0.162*** 0.028 0.000 [0.107; 0.218]
OE 0.041*** 0.011 0.000 [0.020; 0.063]
GE 2.151* 1.002 0.032 [0.186; 4.116]
RL −1.925** 0.863 0.026 [−3.618; −0.232]
LIR 0.396* 0.229 0.084 [−0.052; 0.845]
Interaction 1 12.852* 7.504 0.090 [−4.187; 29.893]
Interaction 2 −0. 919** 0.366 0.012 [−1.638; −0.200]
Intercept −10.214** 5.718 0.074 [−21.422; 0.993]
***, **, *, indicate significance of coefficients at levels 1%, 5% and 10%, respectively.

also deserves to be noted that the collinearity between the two variables GE and RL in this model can
be omitted since the determinant of the exogenous variables remains significantly different from zero,
which has no influence on the stability of the estimates. However, it would still be possible to test the
model better by adding other factors, such as the corruption and democracy indices (see Al-Kasim,
Søreide, and Williams (2013)).

4. Discussion
The findings of this work confirm a whole list of works dealing with the relationship between the
endowment of natural resources and economic growth, the most recent of which are Shao and Qi
(2009), Van Der Ploeg (2011), Jbir and Zouari-Ghorbel (2011), Jbir (2013), Shao and Yang (2014),
Benramdane (2017), Rustamov and Adaoglu (2018), Li et al. (2019). What seems most impressive
in this paper is the positive correlation between oil rents and the economic growth, a result, which
in fact had already been shown in models that only included oil rents as a variable of oil
endowment. This was for example the case of Matallah and Matallah (2016). On the other hand,
although the main result points in the same direction as much of the literature, which argue that
natural resources negatively affect the countries’ GDP growth in presence of quality of institution
factors, it runs contrary to the findings of some other experiments that employed different methods.
For instance, Smith (2015) found that newly resource-rich countries on average experience a large
increase in GDP per capita levels that persists into the long-term. According to him, there is little
evidence to support the presence of some common resource curse channels, such as harm to
political and economic institutions. These types of effects would be expected to be felt some
number of years after the beginning of exploitation, but his study finds no evidence of negative
long-run growth effects. The author also states that the usual negative association between institu­
tions and resource wealth applies mainly to countries that were known to be resource-rich in the
colonial era and were thus given extractive institutions. The author finished by suggesting further
research on the link between resources and institutions, and that is what we tried to do in our
article.
In the same direction as Smith (2015), the work of James (2015) has established an alternative
explanation focusing on the sector-specific growth. He also found that resource-dependent countries
have grown slowly during certain growth periods, but relatively quickly during others. According to
the author, these results are explained by average short-growth heterogeneity, a large amount of which
is created by variation in the resource price. This result also proves evidence contradicting the large
literature claiming a negative relationship between growth and natural resources. Nevertheless, unlike
our work and that of Smith (2015), the study of James (2015) has completely omitted factors reflecting
the quality of institutions. Therefore, it appears that the study has lacked one of the most important
elements that, if introduced, could have changed the obtained results.
 ENERGY SOURCES, PART B: ECONOMICS, PLANNING, AND POLICY 11

Still in the same context, Allcott and Keniston (2018) have considered whether oil and gas extraction
has benefited people who live in resource-abundant areas, or whether there might be a natural resource
curse acting through a Dutch Disease-style chain of events. However, in comparison with the above-
mentioned approaches, the authors here have only addressed the problem from a local perspective (local
effects). To test between the two alternative mechanisms, they combined county-level panel data on
employment, earnings, and population with a dataset of county-level oil and gas production and reserves.
Their principal finding is that, while resource booms do not produce strong agglomerative forces, they
also have not lead to an economic regression, i.e., there was no evidence for a Dutch Disease mechanism.
Finally, Bjørnland, Thorsrud, and Torvik (2019), has recently proved close results, stating that,
when institutions are weak, oil abundance does not result in the development of a domestic oil service
industry. In such countries, therefore, the spending effect of resource abundance may be the dominant
one. On the other hand, in countries with strong institutions, a domestic oil service industry is more
likely to develop. In these countries, the resource movement effect therefore comes into play. In their
proposed model, the latter effect was more likely to increase income than the former effect, which is
one possible explanation of the diverging effects of resource abundance between countries with weak
and with strong institutions. Therefore, while oil activity may contribute to growth in e.g. Norway or
in the U.S., it may be less likely to do so in e.g. Venezuela or in Angola. Nevertheless, as for Allcott and
Keniston’s study, the shortcoming of this work is that it has been centralized by focusing on a local
economy, while our work rather presented a global approach including a number of real factors
reflecting the importance of economic and financial institutions.
It is therefore clear that, in short term, the relationship between economic growth and oil resource
(or any other resource) endowment is increasingly being inverted, particularly with the deterioration
of the quality of institutions and their ability to play objective roles in those societies. This is
particularly the case for the few less-democratic nations that own the majority of the world’s oil
reserves, which according to many non-governmental organizations, remain poorly ranked on the
basis of the index of least corrupt nations in the world (Corruption Perception Index). In addition, the
opposition of corrupt administrative systems has also tendency to rise with the political and social
instability experienced by major oil producers in recent years, as well as the rise of radical forces in
many developed countries, either at head of power, or as opposition and pressure political forces, as is
the case in the USA and Europe.
Therefore, it would be important for some of these countries today to review the contracts signed
with the extraction companies as well as the policies and pace of extraction of these natural resources.
Indeed, if a country can not use its resources optimally, it may be advantageous for it to preserve its
resources, seeing that the value of these resources tends to increase over time. Even the existence of
stabilization or extra budgetary funds in several oil-producing countries, such as the Texas Permanent
University Fund in the United States or the Libyan Investment Authority in Libya, require to pursue
bold policies to encourage the competitiveness of non-oil sectors.
Medium-term implications can evidently be linked to what is happening in most Middle Eastern
countries, and in what sense will these conflicts evolve over the next few years. In fact, a number of
countries with significant oil resources know since the outbreak of the Arab Spring in Tunisia in 2011,
either protest movements, as in Algeria, Sudan, or multilateral conflicts, as in Saudi Arabia, Qatar, Iran
and Libya. Faced to these movements, the relationship between economic development and oil
resource endowment can either evolve toward a positive correlation, once the quality of institutions
has been strengthened by the rise of real democracies to the powers. On the other hand, the relation
can evolve in the opposite way, with either the rise or the stabilization of the armies and the dictator­
ships to the powers, as in Egypt, or the entrance into chaotic stagnation situations, as in Syria. In the
last two scenarios, we will be faced to real cases of curse endowment in oil resources.
In the long term, it is clear that the gap in development is widening between the two types of
countries, on one hand, those with skillful and correct institutions, and on the other hand, those with
incompetent and corrupt institutions. It is therefore very likely that, after a few decades, we probably
will find many crude oil exporters in critical condition. Especially with the depletion of their reserves
12 F. SAÂDAOUI AND R. JBIR

in the face of the desertification of their local economic and financial environment. As a result, we find
that some of them are today working to change their economic policies toward economies that are less
dependent on oil production. The case of Saudi Arabia, which has the second largest oil reserve, in its
vision of the near future, is a concrete case of the change of reasoning of these countries.
Finally, given the negative impact of oil endowments on economic performance, oil producer countries
must promote the renewable energy sector to replace oil as a source of energy. Certainly, some of them
have already started, but others are not yet. Thus, these countries must begin by strengthening the
necessary programs and infrastructure for renewable energies (include renewable energy studies in
university programs, set up training centers, intensify awareness-raising actions toward renewable ener­
gies, invest in equipment, etc.). It is also essential for these countries to limit external borrowing because, if
the amount borrowed is used to finance national expenditures, this may contribute to the overvaluation of
the exchange rate, and subsequently, accentuate the Dutch disease by blocking other exports.

5. Conclusion
The aim of this article was to provide an answer to the question of the nature of the relationship between
countries’ growth rate and their oil endowment. In this sense, the first part of this paper was devoted to
the review of the different empirical studies conducted in this context. In the literature, many con­
troversial results have been developed on this subject. Some of which confirmed the existence of
a negative correlation between economic growth and the endowment of natural resources in general,
and oil resource in particular. Other studies have, by contrast, proved the existence of a positive
relationship. Thus, this paper has attempted to provide a detailed analysis, where a number of exogenous
factors reflecting the quality of national institutions have been included together with the two main
factors of qualifying a nation as oil country. The other particularity of our model is that, among the
exogenous, it includes two variables to describe the oil endowment, which are the oil rents as well as oil
proven reserves. The empirical results have allowed us to prove the hypothesis that there is a negative
correlation between the endowment of oil resources and economic growth. Accordingly, it appears that
countries in which the economy is open and the investment is more developed grow faster, while
countries with poor institutions suffer slower growth. The results confirm the old hypothesis that natural
resources negatively affect the countries’ GDP growth through the quality of their institutions. In the near
future, it will be interesting to reconsider this issue within other energy sectors, especially that of
electricity and carbon (see Worthington and Higgs (2017), Apergis (2018), Saâdaoui (2013) and
(Saâdaoui 2017), Saâdaoui and Rabbouch (2019)). Furthermore, widening the sample of countries and
adding other factors to the model, such as the corruption and democracy indices (Al-Kasim, Søreide, and
Williams (2013)) could also lead to new insights or refinement of earlier insights. Furthermore, for better
appreciating the possibly non-linear correlations and causalities between the different factors involved in
this study, it would also be interesting to opt for new methodologies such as those based upon principles
of statistical machine learning and data mining (Saâdaoui (2012), Saâdaoui and Rabbouch (2014)).

Acknowledgments
We would like to thank the anonymous reviewers for their insightful and constructive comments that greatly
contributed to improving the paper. Our many thanks go also to the editorial staff for their generous support and
assistance during the review process.

ORCID
Foued Saâdaoui http://orcid.org/0000-0002-0574-2922
Rafik Jbir http://orcid.org/0000-0001-6614-5438
 ENERGY SOURCES, PART B: ECONOMICS, PLANNING, AND POLICY 13

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