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References

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1

We are grateful to Joshua Aizenman, Paul Cashin, Luis Catão, Thomas Helbling, Hashem Pesaran, Abdelhak Senhadji, Jeffrey Williamson, and seminar participants at the RES Annual Conference 2011, the CSAE University of Oxford and the MCD Discussion Forum Series at the IMF, as well as conference participants at the ERF Regional Conference on Environmental Challenges in the MENA Region for constructive comments and suggestions. Financial support from the Economic Research Forum (ERF) through the Second Environmental Economics Research Competition for MENA’ is gratefully acknowledged. The views expressed in this paper are those of the authors and not necessarily those of the ERF.

Tiago V. de V. Cavalcanti and Kamiar Mohaddes: Faculty of Economics, University of Cambridge, UK.

2

See also Rosser (2006) and van der Ploeg and Venables (2009) for an extensive survey of the resource curse paradox.

3

The explanatory variables are assumed to be uncorrelated with future realizations of the error term.

5

We test whether the differenced error term is second-order serially correlated as by construction, it is most likely first-order serially correlated even if the original error term is not.

6

Robertson and Symons (1992) and Pesaran and Smith (1995) show that imposing invalid parameter homogeneity in dynamic models typically leads to downward biased estimates of the speed of adjustment.

7

The same strategy in used by Binder and Offermanns (2008) in a different context.

8

The commodities are: Shrimp, beef, lamb, wheat, rice, corn, bananas, sugar, coffee, cocoa, tea, soybean meal, fish meal, hides, soybeans, natural rubber, hardlog, cotton, wool, iron ore, copper, nickel, aluminum, lead, zinc, tin, soy oil, sunflower oil, palm oil, coconut oil, gold, and crude oil.

9

In the growth literature government burden is defined as the ratio of government consumption to GDP, while lack of price stability is defined as log(100 + inflation rate), see for instance Aghion et al. (2009).

10

This ratio is calculated based on data from the United Nations Conference on Trade and Development online database using SITC 0, 1, 2, 3, 4, 68, 667, and 971.

11

A similar measure is also used by Lee et al. (2008).

12

In those countries for which data on investment is missing in 1960, t 0 is the next available data point followed by other observations.

14

We also constructed the human capital series by assuming that the returns to primary, secondary, and tertiary schooling is equal to 0:134, 0:101, and 0:068 per annum, but as expected, this does not lead to any significant change in the series or the results.

16

Cashin and McDermott (2002) also argue that the volatility of commodity prices, as measured by The Economist’s index of industrial commodity prices, dominates any trend in real prices.

18

For more details see Esfahani et al. (2009).

19

To confirm the results in Section V.A.2, we also estimated regressions [4.1] to [4.3] for the 56 net commodity importing countries in our sample. As expected we found no significant effect of gCTOT and σCTOT on the three channels for these countries.

20

In any case, our results regarding the effect of volatility on the human capital accumulation channel was inconclusive and so warrants further investigation.

21

There is no evidence of serial correlation, non-normality, functional form misspecification, or heteroskedasticity in most of the 52 countries in the sample. The results of the diagnostic tests are not reported in the paper but are available upon request.

22

The individual country results are not reported here but are available upon request.

23

The likelihood ratio (LR) test always suggests that homogeneity is not a reasonable assumption in our regressions, as it does in the Pesaran et al. (1999) study of aggregate consumption. On the other hand, the Hausman test typically accepts poolability in the Pesaran et al. (1999) study as it does in our regressions. We focus largely on the Hausman test statistic based on the evidence provided by Pesaran et al. (1996). They examine the properties of the Hausman test by conducting a Monte Carlo study and show that when T is small relative to N, as it is in our study, the Hausman test has reasonable size and power.

Commodity Price Volatility and the Sources of Growth
Author: International Monetary Fund