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The Pungent Smell Of "Red Herrings": Subsoil Assets, Rents, Volatility And The Resource Curse

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Executive Summary

Brunnschweiler and Bulte (2008) provide cross-country evidence that the resource curse is a "Red herring" once one corrects for endogeneity of resource exports and allows resource abundance affect growth. Their results show that resource exports are no longer significant while the value of subsoil assets has a significant positive effect on growth. But the World Bank measure of subsoil assets is proportional to current rents, and thus also endogenous. Furthermore, their results suffer from an unfortunate data mishap, omitted variables bias, weakness of the instruments, violation of exclusion restrictions and misspecification error.

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