# **1 Introduction**

Oil discoveries can constitute a major positive exogenous shock to national wealth and hence to economic activity. However, the _resource curse_ hypothesis suggests that such discoveries may ultimately prove detrimental to long run growth if they put countries on a path to resource dependence. There exists no short-run corollary to the resource curse hypothesis, however recent years have seen a spate of countries facing severe economic challenges in the years following major natural resource discoveries, including Ghana, Mozambique and Brazil. In this paper we seek to examine whether these anecdotal cases generalise to a widespread empirical phenomenon. We investigate the short run growth response to major oil and gas discoveries around the globe.

We utilise novel data and a newly developed methodology for estimating growth under-performance, to examine the extent to which discoveries depress the growth path of a country following a discovery - and prior to resource wealth being converted into private and public revenues. By combining information on the timing and location of giant oil and gas discoveries with IMF growth forecasts we can estimate the extent to which discoveries lead to _growth disappointment_ effects whereby the actual growth path under-performs relative to the counter-factual expected growth. Using synthetic control method we verify these effects for a selection of countries. We find causal evidence of a significant negative effect on short-run growth relative to counter-factual forecast growth; creating growth disappointments even before production begins. We term this the **presource curse** .

Under the resource curse hypothesis, the curse is normally defined and measured in terms of lower growth in resource abundant economies compared to non-resource rich economies. These may or may not constitute a meaningful control group. An ideal test would be to compare resource-rich countries’ growth compared with the counter-factual growth trajectory had they successfully harnessed their resource wealth. In other words, an ideal measure of the resource curse would evaluate what growth _could have been_ compared to what it actually was. Unfortunately, we do not observe this counter-factual. Our paper takes advantage of the closest we get to this growth counter-factual over the short-run - expert growth projections from the IMF’s World Economic Outlook. While limited to five year forecasts only, these nonetheless provide a setting for us to test the growth performance against some benchmark counter-factual of what the growth effects of a discovery are expected to be.

We find that while growth forecasts across the global sample are consistently higher on average for the period following a major oil or gas discovery, actual growth paths are, on average, lower or unchanged, relative to periods without such discovery. This divergence between the expected effect of a discovery on output and actual economic performance can be thought of as a growth disappointment - in the cases where projections exceed performance. For an oil or gas discovery exceeding 500 million barrels of oil equivalent, we estimate an average growth disappointment effect of 0.83 percentage points, measured as the average annual gap between forecast and actual growth over the 6 years following a discovery. Our estimated effect varies by the size of discovery, increasing to 1.77 in the case of super-giant discoveries.

Evidence suggests that the growth disappointment effects are mediated by the quality of political 2