We investigate the effect of oil revenues on long-term economic growth within a Bayesian framework that accounts for model uncertainty. Our anal- ysis is based on an updated cross country data set for long term growth in the period 1970-2014 including 91 countries and 54 potential growth deter- minants. Initially, we do not find any empirical evidence for the existence of the \natural resource curse" in our sample. On the contrary, we document a robust positive effect of oil rents on long-term economic growth. Then, we introduce interaction terms of oil rents with potential conditions under which oil dependency can lead to sub-standard growth. Our second set of results shows that the interaction of institutional quality and oil revenues has a ro- bust positive effect on growth, while the constituent oil rent term is no longer robust. We conclude that institutional quality is necessary condition for oil revenues to have a growth-enhancing effect.

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Zayed University

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Author First name, Last name, Institution

K. Peren Arin