Policy responses to the COVID-19 pandemic: Another case of “resource curse”?

Abstract

This paper examines the COVID-19 policy responses with focus on resource abundance and the role of policy tools, like oil-based Sovereign Wealth Funds, employed in resource-rich countries to support fiscal responses to the pandemic. Panel data on a sample of 217 countries for the period 2019–2020 are used. Quantile regression analysis is employed to obtain a nuanced understanding of the identified relationships which goes beyond mean links. Empirical results show that resource-rich countries, and hydrocarbon rich-countries in particular, record smaller fiscal responses to the pandemic as compared to resource-poor countries. This holds true even for countries that operate Sovereign Wealth Funds. Results are consistent under different model specifications, policy response measures (fiscal, on-budget), resource-abundance variables, whole- and sub-sample, at the mean and different quantile levels. The findings confirm another case of the “resource curse” manifested through weaker fiscal stimulus in resource-rich countries as compared to resource-poor countries. This calls for policy considerations in resource-rich countries to better prepare against future shocks and to carefully consider in this process the role of explicit policy tools they may employ.