Economic prosperity, asymmetric natural resource income, and ecological demands in resource-reliant economies

Abstract

This study extends the literature by examining the linear and nonlinear effects of natural resource income and the contribution of environmental demands to long-term economic growth in resource-reliant economies (RREs). Data was sourced from 45 RREs from 1970 to 2019 and processed using three novel methodological techniques: the heterogeneous mean group (MG), augmented MG, and common correlated effects MG. Empirically, the study affirmed asymmetry in the natural resources rents-economic growth nexus. Specifically, the study found that environmental demands and positive changes to natural resources income are a blessing to long-term economic growth. In contrast, adverse changes to natural resources income are growth decelerating. Globalisation and human capital development served as control variables, and while the former accelerated long-term economic growth, the latter had an irrelevant effect on the RREs. In addition, the Dumitrescu and Hurlin causality result showed a bidirectional nexus between environmental quality and economic growth and between economic growth and negative natural resource income changes. A unidirectional causal flow from positive natural resources income to economic prosperity and from the latter to human capital development was also revealed. The study proposed relevant policy measures.