Curse or blessing: how does natural resource dependence affect city‐level economic development in China?

Abstract

Based on the ‘resource curse’ theory, this study uses panel data for 256 prefecture‐level cities in China from 2003 to 2016 to test the relationship and mechanism between natural resource dependence and economic development. The panel model and instrumental variable regression results show that natural resources generally promote economic development, but for 109 resource‐based cities, the influence of natural resources on economic development seems quite different. The panel threshold model shows that in the resource‐based cities, (i) resources have a ‘blessing effect’ on economic development during economic prosperity (GDP growth rate is greater than 12.1 per cent); (ii) the relationship is not statistically significant when the GDP growth rate is between 5 per cent and 12.1 per cent; and (iii) when the GDP growth rate is lower than 5 per cent, natural resources have a ‘curse effect’ on economic development. Furthermore, the results of the mediation effect model show that the mediation effect of industrial diversification on the relationship between resource dependence and economic development suppresses the promotion of natural resource on economy. An excessive concentration of resource industries has a crowding‐out effect on non‐resource industries in resource‐based cities, which reduces the level of industrial diversification and is not conducive to economic development.