The natural resource curse: Evidence from the Colombian municipalities

This paper evaluates the effect of natural resource revenue on expenditure efficiency. Using a panel of Colombian municipalities over 2003–2011, we use a two-step procedure to estimate the effect of natural resource revenue on municipal efficiency. First, the technical efficiency of local governments is calculated through a robust non-parametric method. These estimates are then used in a second step to evaluate how the local government's efficiency varies with exogenous variation in royalties. Our findings indicate that royalties reduce efficiency in the provision of education and health care services, providing evidence of one of the mechanisms explaining the natural resource curse.