Abstract
PurposeThe paper assesses the role of natural resource rents in Nigeria's economy through the channel of institutional quality.Design/methodology/approachThe analysis is done with the use of autoregressive-distributed lag (ARDL) bounds testing approach to cointegration, vector error correction model (VECM), Granger causality test and cointegrating regression over the period 1996–2019.FindingsFindings support the notion that overreliance on natural resources could exacerbate the growing number of dysfunctional economic outcomes in the country. The study confirms that a mix of weak governance quality and natural resource rents could have a negligible effect on economic growth and possible retardation impact on the economy in the long run as well as in the short run. The evidence further reveals that there is unidirectional causality running from the interaction term to growth, suggesting that growth trajectory could be jointly determined by natural resource rents and the quality of institutions.Originality/valueThe divergent arguments associated with the mechanisms of resource curse in each of the resource-rich countries offer ample support for the contention that economic outcomes in resource-abundant states may not be a product of resource windfalls per se, but rather the quality of governance or ownership structure. Hence, the ultimate aim of the analysis is to further understanding on the link between resource rents and growth in Nigeria via governance channel.
Highlights
In light of diverse cases in resource-rich countries, interconnections between poor governance and resource course have been a critical issue in the literature
Unlike Zalle (2019) who addressed this with the combination of all direct and indirect effects based on both institutional quality and human capital in one model, this study focuses on the indirect effect of natural resource rents on economic growth through institution channel using different models for the two institutional indicators employed
Rule of law Exchange rate Inflation rate. It is the sum of gross value added by all resident producers in the economy in addition to any product taxes and minus any subsidies not included in the value of the products. It is measured without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources Represent the sum of oil rents, natural gas rents, coal rents, mineral rents and forest rents It is an index that scores countries on how corrupt their governments are viewed to be
Summary
In light of diverse cases in resource-rich countries, interconnections between poor governance and resource course have been a critical issue in the literature. The need to find an explanation for the mechanism underlying the impact of resource rents on economic performance has continued to engender debates about the fundamental cause of the phenomenon of resource curse. A variety of socioeconomic and institutional factors have been identified to elucidate this connection in the literature. The authors specially thank the editorial team of the journal for the professional support offered.
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