Effects of resource abundance on economic complexity: Evidence from spatial panel model

Abstract

This study utilizes the spatial panel method to investigate the direct and spatial spillover effects of resource rents on economic complexity (ECI) based on a cross-country panel data covering 123 countries from 1995 to 2018. First, our empirical results highlight a strong clustering trend in the geographical distribution of global economic complexity. Second, we find that overall resource abundance significantly affects local ECI negatively, aligning with the resource curse hypothesis. However, the evidence remains inconclusive concerning the negative effects of overall resource abundance on the ECI of neighboring countries. Third, as for local ECI, the resource curse hypothesis holds for oil rents and mineral rents, a resource blessing emerges for gas rents. Interestingly, while oil and gas rents could significantly hinder the ECI improvement of spatially related countries, coal rents and mineral rents exhibit positive and significant spatial spillover effects. Fourth, our regional heterogeneity analysis yields very nuanced and diversified findings, notably revealing negative spatial spillover effects of oil rents for most regions except NAEU (Northern America and Europe). Conversely, underdeveloped regions like SSA (Sub-Saharan Africa) benefit from coal rents for not only their own ECI, but also their neighboring countries. Lastly, we also find that institutional quality and financial openness can mitigate the adverse impacts of resource rents on ECI. Yet, an increase in FDI inflows may exacerbate these effects.