Cursed Exports? Natural Resource Endowment, Trade Policy and the WTO

Abstract: This study investigates the relationship between natural resource endowments and openness to trade. With the help of regression analysis the study tests for the impact natural resource endowments may have on the probability of countries to be members of the World Trade Organization (WTO), as well as accounting for a the impact on a country’s more general trade regime. Departing from the assumption that open trade has a positive effect on economic growth and the empirical evidence of the curse of natural resources - i.e. the observation that countries abundant in natural resources tend to perform poorly in terms of economic growth - this study examines if trade policy is a channel for the resource curse. When controlling for other empirically significant variables of trade openness inspired by the gravity model, as well as governance, fuels riches were found to be negatively correlated both with the probability of membership in the WTO and the general measure of degree of liberalized trade policy. While there is no inherent bias against exports of natural resources in the multilateral trading system and the negative correlation between fuels endowments and trade openness is significant, the curse of natural resources appears to be transmitted also to the domain of trade. The finding that countries rich with fuels are less open to trade is considered having explanatory power when assessing the slow pace of economic growth in the resource rich countries.