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On the Good and Bad of Natural Resource, Corruption, and Economic Growth Nexus

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Abstract

The empirical finding that countries endowed with vast reserves of natural resources are expected to experience slower economic growth – the resource curse hypothesis – has sparked debate in the literature about whether natural resources are a curse or a boon. In this study, we re-investigate the natural resource, corruption and growth nexus by using a relatively longer dataset for a panel of countries. Unlike previous attempts, we take into account the potential endogeneity and asymmetric effect in our analysis by applying a recently developed panel quantile estimator. We also focus on the role of corruption in influencing the impact of natural resources on economic growth. Broadly the findings are indicative of an asymmetric effect of resources as the sign and magnitude of natural resources’ impact on economic growth varies over different income quantiles. Although the overall results are mixed, but the results based on fuel export and oil–gas rents as measures of resource endowment are consistent with the ‘resource curse’ hypothesis. Nonetheless, the findings suggest that corruption is critical in determining the marginal impact of natural resources on growth and in many cases, it has effectively transformed the negative effects of natural resources to positive effects in low-to-middle-income countries.

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Notes

  1. For example, in a recent study Okada and Samreth (2017) find that more oil rent leads to significantly high levels of corruption.

  2. It is worth noting that whereas Gerelmaa and Kotani (2016) and Okada and Samreth (2017) used cross-section quantile regression, Wang et al. (2021) applied the technique to time series data. To our knowledge, no attempt has been made previously to analyse the issue using a panel quantile methodology.

  3. Keeping the space constraint in mind, we only provide a brief discussion on the available theoretical literature. See, for example, Van der Ploeg (2011), Dauvin and Guerrerio (2017), Badeeb et. al. (2017), Papyrakis (2017),Vahabi (2018) and Zhang, and Brouwer, (2020) for a detailed and systematic review of literature.

  4. According to IMF (2012), a country is resource-rich if its natural resources generate at least 20% of its merchandise exports or government revenues from oil, gas, or minerals. According to the World Bank (2014), countries with average rents from natural resources (excluding forests) that exceed 5 percent of GDP are considered resource wealthy.

  5. We consider ICRG based corruption index over WGI and Transparency International due to two considerations. First, ICRG data method has remained unchanged over the period. Second, the definition of corruption of ICRG matches our requirement for this study.

  6. We call the relation ‘asymmetry’ when the sign and size of estimated coefficients vary across the quantile.

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Acknowledgements

Authors thanks an anonymous referee for his/her useful comments and helpful suggestions on the previous version of this paper. Any errors or omissions are solely of the authors’.

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  1. Indian Institute of Management Lucknow, Noida Campus, Sector 62, Noida, 201307, India

    Chandan Sharma

  2. Department of Finance and Business Economics, University of Delhi, New Delhi, 110021, India

    Ritesh Kumar Mishra

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  1. Chandan Sharma
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Appendix

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Table 5 List of countries included in analysis
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Table 6 Descriptive statistics
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Table 7 Correlation matrix
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Table 8 Effect of Oil–gas rent and corruption on economic performance
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Table 9 Effect of Mineral rent and corruption on economic performance
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Table 10 Effect of Ores and Mineral export and corruption on economic performance
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Table 11 Effect of oil and gas endowment and corruption on economic performance
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Table 12 Marginal effect of natural resources on per-capita income
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Sharma, C., Mishra, R.K. On the Good and Bad of Natural Resource, Corruption, and Economic Growth Nexus. Environ Resource Econ 82, 889–922 (2022). https://doi.org/10.1007/s10640-022-00694-x

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