Economic growth and the use of natural resources: assessing the moderating role of institutions

Abstract

We analyze how countries with different institutional settings use natural resources for economic growth. For a panel of 159 countries over the period 1992–2010, we estimate how the effect of a permanent increase in the growth rate of GDP on the growth rate of resource use depends on political institutional quality. We study this relationship for total resource use and for its subclasses fossil fuels, biomass, non-metallic minerals, and metal ores. Our results show that the effect of an increase of economic growth on total resource use growth is higher for countries with higher political institutional quality. This result holds for the subclasses biomass and non-metallic minerals and in most specifications for metal ores. In contrast, we find no positive association for fossil fuels. We reconcile our results with endogenous growth theory and suggest technology and input prices as transmission channels. In this interpretation, our results highlight that institutions provide important framework conditions, but they are no general panacea to further decrease the resource dependency of economic growth.