Are natural resources a curse, a blessing, or a double-edged sword? Implications for environmental sustainability

Abstract

Natural resources have a significant impact on economic and political landscapes of developing countries which determines environmental sustainability. This study explores the convoluted connection between governance and natural resources, examining how resource abundance might influence governance quality. The main components of this dynamic that the theoretical framework considers are the Rentier effects, the repression effects, and the obstruction of modernization. This study creates a governance index applying principal component analysis (PCA) on several governance characteristics, such as political stability, rule of law, government efficacy, regulation and control of corruption, to measure governance comprehensively. Natural resource exports, rents, and the differentiation between renewable and non-renewable natural resources are the three proxies used to quantify natural resources, providing a more nuanced view. To calculate the effect of renewable and non-renewable natural resources on governance in developing nations, the econometric methodology uses a dynamic panel model and system GMM. This analysis reveals that the ability of renewable resources to promote inclusive development has a favourable impact on governance. On the other hand, non-renewable resources show a negative correlation, mainly because of their vulnerability to swings in the world price and their propensity to consolidate power and promote corruption. The significance of differentiating between natural resource types is highlighted in this study, along with the possible advantages of renewable resources for governance and the disadvantages of an over-reliance on non-renewable resources. Policymakers, researchers, and practitioners interested in the development and governance difficulties encountered by resource-rich developing nations can benefit greatly from this research's larger and more complex understanding of the link between natural resources and governance.