rates between resource-rich and non-resource-rich countries. Here non-resource-rich countries serve as a counter-factual to the growth path of resource-rich countries. However, this overlooks two challenges. The first is that we do not observe the counter-factual growth rate for the resource-rich countries themselves. Second, we do not consider the under-performance of the country in terms of harnessing its resource wealth. Since such wealth should be a blessing, the curse is not merely a divergence from a non-resource-rich average, but the divergence from the true growth potential from resource-wealth (Ross, 2012). Our methodology of comparing growth to counter-factual forecast growth addresses both these challenges, albeit in the short-run only.

By utilizing IMF WEO growth forecasts we are able to construct a growth trajectory counterfactual based on expert analysis and assuming a stable policy path.<sup>9</sup> This allows us to examine how much weak institutions and policy actions might lead to systematic deviations from the growth path; here any systematic deviation from forecast growth that is associated with a resource discovery can be thought of as evidence of a divergence between the modelled growth and actual growth.

We follow others in the literature (Harding et al., 2016) to argue that the within-country timing of individual discoveries is plausibly exogenous due to the uncertainty surrounding explorations and the limited ability countries and companies have in triggering giant discoveries. While the country’s characteristics may be associated with whether exploration activity takes place or not (see for example the role of institutions versus geology (Cust and Harding, 2014)), and whether a giant discovery is feasible or not, the timing of such a discovery is hard to predict and from a country’s point of view can be considered an unanticipated news shock.

We seek to test two hypotheses. First, whether growth rates are systematically lower in countries following a resource discovery, even before production begins, compared to their predicted counter-factual. And two, whether such under-performance is systematically associated with weak institutions and policy making.

We estimate the effect of giant oil discoveries on the subsequent differential between forecast economic performance and actual economic performance in the period immediately following the discovery. We then distinguish between countries with varying quality of prior institutions and policy making. Finally, we test against long run growth performance to estimate where short-run growth disappointments are balanced by accelerated growth over the medium or long run.

We discuss a variety of potential channels, including the role for IMF growth forecasts influencing sovereign debt rating and the cost of borrowing. We present several examples and country cases that illustrate cases of growth disappointments following major resource discoveries.

For robustness, we test whether our estimates of an overall growth disappointment can be explained by increased imprecision of forecasting i.e. an increase in the absolute forecasting error. We find no evidence for the average imprecision of forecasting increasing following a resource discovery in the global sample and judge this unlikely to be driving our results of a growth disappointment effect.

> 9www.imf.org/external/pubs/ft/weo/data/assump.htm

10