Absorption Capacity and Natural Resource Curse

This paper investigates the impact of absorption capacity (i.e. the level of non-traded capital goods such as infrastructure and human capital) on the intensity of the natural resource curse. Using panel data for 105 countries over the period 1975-2014, I construct two indexes to proxy absorption capacity among countries. A growth regression model, estimated by IV −2SLS technique, shows that the natural resource curse is more intensive in countries with more absorption capacity constraints. Furthermore, based on the idea that some sorts of capital goods (e.g. infrastructure and human capital) can not be redeployed in major countries and they must be produced domestically (i.e. absorption capacity constraints), I put forward a simple two-sector framework, in line with Van der Ploeg and Venables (2013), to clarify the empirical finding.