The OPEC disease

Many developing countries, and especially OPEC members, received vast amounts of revenues from natural resource exports. Yet, in general, their economic performance has been disappointing. I propose a theory which explains why OPEC countries transformed rapidly from rural to service economies and skipped industrialization, while other resource abundant countries were able to industrialize. The central idea is that the extent of the adverse effect of natural resource exports depends on the technological gap vis-a-vis the trade partner. The proposed model sheds new light on the empirical exploration of the natural resource curse. In particular, I find that (i) mineral exports have no significant effect on the quality of institutions, (ii) the relative size of the service sector has a negative effect on growth and (iii) mineral exports have a positive effect on the relative size of the service sector while their marginal effect is an increasing function of the technological gap vis-a-vis the trade partner.