Innovation dynamics in the natural resource curse hypothesis: A new perspective from BRICS countries

Abstract

This paper extends the literature of the natural resource curse by proposing the role of innovation in the relationship between natural resource dependence and economic growth within non-linear model. We hypothesize that innovation can help a country to overcome the resource curse through increasing investment productivity and the creation of highly competitive products that resist the appreciation of the real exchange rate. Using sample data from BRICS countries over the period 1990–2018, the empirical results have established key relationships which have important policy implications. First, natural resource dependence in BRICS countries has a U-shaped non-linear relationship with economic growth. More precisely, natural resource dependence harms economic growth only up to a point; beyond this point more natural resource begins to promote economic growth. Second, the higher innovation the weaker the negative impact of natural resources on growth. Moreover, when innovation exceeds a certain threshold, the resource curse is averted. Third, innovation can reduce natural resource curse more through reducing the exchange rate appreciation consequences rather than enhancing the productivity of investment. Natural resource-based economies should harness the wealth earned from natural resource assets to create sustainable economic growth by leveraging innovation, as it must to overcome the natural resource curse.