Structural Change and Economic Dynamics 22 (2011) 151–161 Contents lists available at ScienceDirect Structural Change and Economic Dynamics journal homepage: www.elsevier.com/locate/sced The pattern of specialization and economic growth: The resource curse hypothesis revisited Syed Mansoob Murshed a,b,∗ , Leandro Antonio Serino c a The Birmingham Business School, University of Birmingham, University House, Edgbaston, Birmingham B15 2TT, UK b Institute of Social Studies (ISS), PO Box 29776, 2502 LT, The Hague, The Netherlands c University of General Sarmiento (UNGS), 1427 Buenos Aires, Argentina article info Article history: Received November 2010 Accepted December 2010 Available online 4 January 2011 JEL classification: F43 O13 O47 Keywords: Economic growth Resource curse Pattern of trade specialization Productive diversification abstract This paper explores the relation between countries’ pattern of trade specialization and long-term economic growth. It shows that countries specializing in the export of natu- ral resource based products only fail to grow if they do not succeed in diversifying their economies and export structure. This conclusion follows from an empirical investigation that has three innovative features. First, it uses a dynamic panel data analysis. Secondly, it employs disaggregated trade data sets to elaborate different measures of trade special- ization that distinguish between unprocessed and manufactured natural resource products and are informative about the countries’ trade diversification experience, their link to world demand trends and involvement in intra-industry trade. The final innovative aspect of the paper relates to our empirical findings: it is only specialization in unprocessed natural resource products that slows down economic growth, as it impedes the emergence of more dynamic patterns of trade specialization. © 2010 Elsevier B.V. All rights reserved. 1. Introduction In recent years countries richly endowed with natural resources have been said to be subject to a phe- nomenon known as the resource curse, something which turns nature’s bounty into a burden. Different authors argued that these countries, particularly in the post-1973 period, experienced lower growth rates compared to their resource poor counterparts (see van der Ploeg, 2008; Murshed, 2004; Sachs and Warner, 1995, 2001, among many other examples). There is a long tradition in economics that frowns upon an extractive natural resource basis for sustaining prosperity, compared to the virtues of relying on human ∗ Corresponding author at: Institute of Social Studies (ISS), PO Box 29776, 2502 LT, The Hague, The Netherlands. Tel.: +31 704260591. E-mail addresses: Murshed@iss.nl (S.M. Murshed), lserino@ungs.edu.ar, leaserino@gmail.com (L.A. Serino). industry, dating back to Adam Smith and David Ricardo in the Anglo-Saxon tradition. Prebisch (1950), Singer (1950) and Hirschman (1958, 1981), all classical development economists, encouraged economic diversification away from natural resource production as well: to counteract the secular decline in the relative price of primary com- modities and to promote growth-enhancing productive complementarities. By contrast to these classical approaches, recent con- cerns with the effects of natural resource abundance are empirically driven, and follow from the robust negative association between natural resource exports and long- term economic growth first found by Sachs and Warner (1995). This finding kicked off a series of studies of this “para- doxical” empirical regularity. They analyze at a theoretical and empirical level the mechanisms through which natural resource abundance can jeopardize economic develop- ment. Some authors maintain that natural resource wealth reduces incentives for human capital investment and inno- 0954-349X/$ – see front matter © 2010 Elsevier B.V. All rights reserved. doi:10.1016/j.strueco.2010.12.004