over of data used, how they are measured, and which source they are from.

# **5 Growth Regressions**

## **5.1 Panel Data Analysis**

Table 1 presents the elementary specification of the growth regressions using panel data and various extensions, all including country as well as period fixed effects. The first column allows human and physical capital, government expenditures, inflation, as well as openness to trade and institutional quality, measured by the rule of law, to influence GDP per capita growth rates. The inclusion of initial GDP per capita controls for convergence within countries, i.e. for convergence to a countryspecific long-term equilibrium growth rate. The negative coefficient of initial GDP per capita confirms that classical convergence hypothesis, as increases in income per capita are followed by lower growth rates of GDP. Higher human capital, investment shares and trade openness, as well as good macroeconomic management (low inflation) and low levels of government expenditures are increasing medium-term growth rates of GDP per capita. Although the coefficient of institutional quality cannot be interpreted causally due to a potential endogeneity bias, the estimates suggest a positive relationship between an improved institutional environment and economic development. The estimated coefficients are not only statistically significant, but also their magnitude shows non-negligible impacts on economic growth. An increase in the share of upper secondary and tertiary educated in the labor force by 10%-points is estimated to increase GDP per capita growth by roughly 0.7%-points. Similarly, based on the results, an increase in the share of investment in GDP by 10%-points has the potential to raise growth by 1.6%-points.

In columns (2) and (3), natural resource rents are added to the equation. Neither in the aggregate form, nor when disaggregated into oil and non-oil resource rents a significant impact can be detected.<sup>10</sup> It is likely, that the impact of natural resources is too heterogeneous and/or depends on additional factors, and only a further refinement can shed light on the role played by natural resources. As an extension of column (2), Figure 4 presents the estimates of the impact of natural resources on economic growth when interacted with period dummies. The variation over time is considerable and might offer an explanation for the insignificance of the natural resource variable in the previous columns. There is evidence for a heterogeneous effect over time, and it appears that during the last decade, natural resource rents had a significant (at the 10% level) and positive impact on economic growth.<sup>11</sup>

> 10When splitting the natural resource variable further into oil, natural gas, mineral and forest rents (not displayed in the table), no further insights are gained. While all coefficients but the one for forest rents are positive, none of them can be distinguished from zero at a statistically significant level of confidence.

> 11The exceptionally large effect in the first half of the 1970s could be due to the vast increase in oil prices, but also to a smaller country-coverage in this early period of the sample.

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