Is a negative correlation between resource abundance and growth sufficient evidence that there is a “resource curse”?

Evidence from cross-sectional growth regressions suggests that economies dependent on natural resource exports have had slower growth than resource scarce economies. Explanations for this “curse of resources” focus on institutional and market failures caused by resource abundance. With a simple two sector model exhaustible resource model, we demonstrate that the correlation between growth and natural resource abundance can be negative in the absence of market and institutional failures. Since there is no way to distinguish between efficient and inefficient equilibria on the basis of the negative correlation between growth and resource abundance, finding that correlation is not sufficient to conclude resources are a curse, nor is it necessary to find a positive correlation between growth and resources to overturn the resource curse interpretation. We show whether resources are a curse or a blessing for an economy can only be determined by an investigation of the correlation between resource abundance and income levels. Using panel data for U.S. states for the period 1970–2001, we show that resource abundance is negatively correlated with growth rates but positively correlated with income levels.