Investigating an optimal resource dependency to prevent natural resource curse: Evidence from countries with the curse risk

Abstract

The aim of this research is to find the optimal level of resource dependence that will eliminate the possibility of natural resource curse in 28 countries. First, the validity of a potential inverted U-shaped relationship between natural resource dependence and economic growth is explored, followed by the computation of the optimum dependency level that maximizes economic growth. A second empirical model is also developed to compare the optimal levels of resource dependence for economic growth and sustainable development. In doing so, second generation panel data methods are used, which account for the cross-sectional dependence of the 1990–2017 period. Furthermore, the impact of factors such as human resources, trade openness, and institutional efficiency, which are thought to mitigate resource risk, are studied. Our findings show that current resource dependency level does not appear to be a barrier to economic growth in 17 of the 28 countries, but it does appear to be a curse for sustainable development in 9 of 17 countries as well as the other 11 countries. Furthermore, it is concluded that increased trade openness promotes economic growth while harming sustainable development.