Natural Resources, Institutional Quality, and Economic Growth The Case of Africa

Abstract

The resource curse hypothesis has been a topic of significant interest among researchers over the years, particularly in the context of African nations endowed with abundant natural resources. Despite their resource wealth, many African countries remain classified as developing nations. This study investigates the relationship between natural resources, both in aggregated and disaggregated forms, and composite institutional quality on the economic growth of 43 resource-rich African countries, juxtaposed against nine non-resource-rich African nations. The research seeks to analyze the interactive effect of natural resources and institutional quality on economic growth by utilizing annual data spanning from 1980 to 2020 across 52 African countries. To ensure robustness and accuracy in parameter estimation, the study employs the Driscoll-Kraay estimation technique. The findings of this study reveal that resource-rich African countries tend to experience higher economic growth rates compared to their non-resource-rich counterparts. Surprisingly, the analysis indicates that institutional quality does not exert a significant influence on economic growth in either resource-rich or non-resource-rich African nations. Furthermore, the marginal effect analysis demonstrates that weak institutional quality in Africa has mitigated the positive impact of natural resources on economic growth in resource-rich African countries. Among the disaggregated natural resources studied, natural gas emerges as a resource with no statistically significant impact on the economic growth of both resource-rich and non-resource-rich African countries. Conversely, oil and mineral resources exhibit a positive influence on economic growth. Notably, the effect of oil and mineral resources on economic growth is more pronounced in resource-rich countries compared to non-resource-rich nations. This study underscores the imperative for resource-rich African countries to prioritize the strengthening of their institutional structures as a means to achieve sustained economic growth.