Resource shocks, firm obstacles, and local business in Africa

Abstract

The negative correlation between growth and natural resource abundance is widely studied in the resource curse literature. We add to this literature by examining the heterogeneous effect of resource rents on the obstacles faced by different sized firms. We find small firms experience more setbacks across a range of categories—including corruption—in response to positive exogenous resource shocks while large firms tend to benefit. These results are robust across a number of specifications as well as a placebo analysis where resource shocks are randomly assigned. Our findings contribute to our understanding of how resource rents exacerbate the existing difficulties faced by small firms in the developing world.